Question

TB Problem Qu. 6-234 Data concerning Wislocki ... Data concerning Wislocki Corporation's single product appear below. Percent of Sales 1005 205 Per Unit $140 28 $112 Selling price Variable expenses Contribution margin 809 Fixed expenses are $1,055,000 per month. The company is currently selling 9,700 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 $101000 per month. The marketing manager predicts that introducing this sales incentive would increase monthly sales by 300 units. What should be the overall effect on the company's monthly net operating income of this change? Change in net operating income 100

Answer 1

Wislocki Corporation Current: (112 x 9700 ) - 1055000 = 31400 Proposal : ( 102 x 10000 ) - 954000 = 66000 Therefore, Yes to the proposal.It would increase profits by $34600. How much would the proposal have to be for the commission rate to make you indifferent (31400 + 954000 ) / 10000 = $98.54 necessary CM per unit. Therefore $140 - $98.54 = $41.46. Therefore the commission would have to be $13.46 or lower. Shellhorse Corporation Increase in total contribution margin ($200 per unit x 140 units) Less incremental fixed expenses Change in net operating income. 28000 22000 6000