Fixed expenses are $147,000 per month. The company is currently selling 2,000 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 $13 per unit. In exchange, the sales staff would accept a decrease in their salaries of $22,000 per month. (This is the company's savings for the entire sales staff.) The marketing manager predicts that introducing this sales incentive would increase monthly sales by 400 units. What should be the overall effect on the company's monthly net operating income of this change?

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Business

Angel Mathis

17 August, 21:34

Fixed expenses are $147,000 per month. The company is currently selling 2,000 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 $13 per unit. In exchange, the sales staff would accept a decrease in their salaries of $22,000 per month. (This is the company's savings for the entire sales staff.) The marketing manager predicts that introducing this sales incentive would increase monthly sales by 400 units. What should be the overall effect on the company's monthly net operating income of this change?

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Israel White · Answer 1

We don't have enough information to calculate the exact effect on the net operating income. For example, we will need the selling price and unitary variable costs. But we can calculate the effect on the fixed costs and selling variable costs.

Savings in fixed costs = $22,000

Increase in total variable costs = 13 * 2400 units = $31,200

To decide whether it is convenient or not we need the information previously stated.