Goedl, Inc. is located in the Milford area. The company produces and sells a sin

Question

Goedl, Inc. is located in the Milford area. The company produces and sells a single product. Data about Goedl, Inc. is presented in the chart below.

Fixed expenses are $1,053,000 per month. The company is currently selling 9,900 units per month.

The marketing manager would like to introduce sales commissions as an incentive for the sales staff. The marketing manager has proposed a commission of $9 per unit. In exchange, the sales staff would accept an overall decrease in their salaries of $101,000 per month. The marketing manager predicts that introducing this sales incentive would increase monthly sales by 490 units.

What should be the overall effect on the company's monthly net operating income of this change? (Negative amount should be indicated by a minus sign. Omit the "$" sign in your response.)

Per Unit Percent of Sales   Selling price $ 150   100%   Variable expenses 30   20%   Contribution margin $ 120   80%

Explanation / Answer

Present Proposed Sales units 9900 10390 Sales revenue 1485000 1558500 Variable expenses 297000 405210 Contribution margin 1188000 1153290 Fixed expenses 1053000 952000 Net operating income 135000 201290 Monthly net operating income increases by $66290 (201290-135000)

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