Taylor company has current sales of 1,000 units, at a selling price of $190 per unit, variable costs per unit of $76 and fixed expenses of $96,000. the company believes sales will increase by 300 units, if the company introduces sales commissions as an incentive for the sales staff. the change will decrease the selling price to $175 per unit, increase variable cost per unit to $100 and decrease fixed expenses by $20,000. what is the net operating income after the changes?

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Business

Norah Bradshaw

26 September, 08:35

Taylor company has current sales of 1,000 units, at a selling price of $190 per unit, variable costs per unit of $76 and fixed expenses of $96,000. the company believes sales will increase by 300 units, if the company introduces sales commissions as an incentive for the sales staff. the change will decrease the selling price to $175 per unit, increase variable cost per unit to $100 and decrease fixed expenses by $20,000. what is the net operating income after the changes?

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Moshe · Answer 1

Let us calculate net profit on each unit; after the changes, we have that the company sells 1300 units and eah unit has a profit margin of 175-100=75$. We also have that the fixed costs are in total 96000-20000=76000$. Consider the profit function P (x) that depends on the number x of units sold. P (x) = 75*x-76000. Substituting x=1300, we have that P (x) = 97500-76000=21.500$. This is the Net operating Income after the changes.