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4 August, 01:06

Goldin Corporation currently pays its salesperson a flat salary of $5,000 per month and is considering paying him $20 per unit instead. Sales are currently 200 units per month. Goldin believes the compensation change will increase unit sales by 50%. The current contribution margin is $80 per unit. If the change is implemented, net operating income will:

a. decrease by $1,000

b. decrease by $7,000

c. increase by $7,000

d. increase by $1,000

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Answers (1)
  1. 4 August, 04:28
    0
    The net operating income will c. increase by $7,000

    Explanation:

    The formula to calculate net operating income is =

    Gross income - Operating expenses

    If Sales are equal to 200 units and the payment for a salesperson is

    a flat salary of $5,000

    Gross income = 200 * $80 = $16,000

    and

    Operating expenses = $5,000

    so

    Net operating income = $16,000 - $5,000 = $11,000

    If we rise the Sales to 300 units then the payment for the salesperson will be 20$ * 300 = $6,000.

    Gross income = 300 * $80 = $24,000

    and

    Operating expenses = $6,000

    so

    Net operating income = $24,000 - $6,000 = $18,000

    $18,000 - $11,000 = $7,000
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