Data concerning Wislocki Corporation's single product appear below:Per Unit Percent of SalesSelling price $ 160 100 %Variable expenses 40 25 %Contribution margin $ 120 75 %Fixed expenses are $1,036,000 per month. The company is currently selling 9,500 units per month. Required:The marketing manager would like to introduce sales commissions as an incentive for the sales staff. The marketing manager has proposed a commission of $10 per unit. In exchange, the sales staff would accept an overall decrease in their salaries of $110,000 per month. The marketing manager predicts that introducing this sales incentive would increase monthly sales by 520 units. What should be the overall effect on the company's monthly net operating income of this change?

Question

Business

Giuliana Forbes

19 September, 23:53

Data concerning Wislocki Corporation's single product appear below:Per Unit Percent of SalesSelling price $ 160 100 %Variable expenses 40 25 %Contribution margin $ 120 75 %Fixed expenses are $1,036,000 per month. The company is currently selling 9,500 units per month. Required:The marketing manager would like to introduce sales commissions as an incentive for the sales staff. The marketing manager has proposed a commission of $10 per unit. In exchange, the sales staff would accept an overall decrease in their salaries of $110,000 per month. The marketing manager predicts that introducing this sales incentive would increase monthly sales by 520 units. What should be the overall effect on the company's monthly net operating income of this change?

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Johanna Murray · Answer 1

Income will increase in $72,200

Explanation:

Giving the following information:

Comission = $10 per unit

The decrease in fixed cost = $110,000

Increase in sales = 520 units

First, we need to determine the actual net operating income:

Sales = 160*9,500 = 1,520,000

Variable cost = 40*9,500 = (380,000)

Contribution margin = 1,140,000

Fixed costs = (1,036,000)

Net operating income = $104,000

Now, we can calculate the effect on income:

Contribution margin = (9,500 + 520) * 120 = 1,202,400

Fixed costs = (1,036,000 - 110,000) = (926,000)

Variable marketing cost = (10,020*10) = (100,200)

Net operating income = 176,200

Income will increase in (176,200 - 104,00) = $72,200