Answer:
Income will decrease by $1,700.
Explanation:
Giving the following information:
Selling price= $140
Variable expenses= 28
Contribution margin= 112
Fixed expenses are $720,000 per month.
The company is currently selling 8,000 units per month.
The marketing manager has proposed a commission of $9 per unit. In exchange, the sales staff would accept a decrease in their salaries of $60,000 per month.
Sales would increase by 100 units.
We need to calculate the effect of this change on the monthly income. We need to calculate the increase in units, the decrease in fixed costs, and the increase of variable costs.
New variable cost= 28 + 9= 37
Effect on income= 100* (140 - 37) + 60,000 - (9*8,000)
Effect on income= -$1,700
Income will decrease by $1,700.
Answer:
Therefore, The overall effect would be that the net operating income per month will decrease by $1,700
Explanation:
According to the given data the Revised net selling price per unit = $140 - sales commission = $140 - 9 = $131 / unit
To calculate the overall effect on the company's monthly net operating income of this change we would make the following calculations:
Units sold 8000 8100 Increase/ decrease
sales revenue $131 per unit $ 1,120.000 $ 10,61,100 $ -58,900
Less: variable cost $28 per unit $ 224,000 $ 2,26,800 $ 2,800
Contribution $ 8,96,000 $ 8,34,300 $ -61,700
Fixed expense $ 7,20,000 $ 6,60,000 $ -60,000
Net Operating Income $ 1,76,000 $ 1,74,300 $ -1,700
Therefore, The overall effect would be that the net operating income per month will decrease by $1,700
