10. Splendid Corporation produces and sells a single product. Data concerning that product appear below: Per Unit Percent of Sales Selling price .................................. $120 100% Variable expenses ...................... 36 30% Contribution margin.................... $84 70% Fixed expenses are $516,000 per month. The company is currently selling 7,000 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 $9 per unit. In ex- change, the sales staff would accept an overall decrease in their salaries of $55,000 per month. The marketing manager predicts that introducing this sales incentive would in- crease monthly sales by 200 units. What should be the overall effect on the company's monthly net operating income of this change? Required: What should be the overall effect on the company's monthly net operating income of this change?
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The contribution margin per unit is the selling price per unit minus the variable expenses per unit, which is $120 - $36 = $84. The total contribution margin is the contribution margin per unit times the number of units sold. Let's assume the number of units Show more…
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