Question

Data concerning Bazin Corporation's single product appear below:

	Per Unit			Percent of Sales
Selling price	$	100			100	%
Variable expenses		20			20	%
Contribution margin	$	80			80	%

Fixed expenses are $384,000 per month. The company is currently selling 6,000 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 exchange, the sales staff would accept a decrease in their salaries of $46,000 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 500 units. What should be the overall effect on the company's monthly net operating income of this change?

Answer 1