Bohlen Corporation produces and sells a single product.Data concerning that product appear below: Fixed expenses are $716, 000 per month.The company is currently selling 6, 000 units per month.Consider each of the following questions independently. This question is to be considered independently of all other questions relating to Bohlen Corporation.Refer to the original data when answering this question.
The marketing manager would like to introduce sales commissions as an incentive for the sales staff.The marketing manager has proposed a commission of $16 per unit.In exchange, the sales staff would accept a decrease in their salaries of $84, 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 600 units.What should be the overall effect on the company's monthly net operating income of this change?

Question

Bohlen Corporation produces and sells a single product.Data concerning that product appear below:  Fixed expenses are $716, 000 per month.The company is currently selling 6, 000 units per month.Consider each of the following questions independently. This question is to be considered independently of all other questions relating to Bohlen Corporation.Refer to the original data when answering this question.
The marketing manager would like to introduce sales commissions as an incentive for the sales staff.The marketing manager has proposed a commission of $16 per unit.In exchange, the sales staff would accept a decrease in their salaries of $84, 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 600 units.What should be the overall effect on the company's monthly net operating income of this change?

Quizplus · Accepted Answer

The increase in sales by 600 units will result in a total of 6,600 units sold per month (6,000 + 600).

The additional revenue generated by these extra sales can be calculated as: 
600 units x $ 40 per unit (selling price - variable cost per unit) = $ 24,000

However, the sales staff will receive a commission of $16 per unit, which amounts to:
600 units x $ 16 = $ 9,600

Additionally, the company will save $ 84,000 per month in salaries.

Therefore, the net effect on the company's monthly net operating income is:

$ 24,000 (increase in revenue) - $ 9,600 (commission paid to the sales staff) - $ 84,000 (savings in salaries) = $ 30,400

This represents an increase of $ 30,400 in net operating income per month.

Bohlen Corporation Produces and Sells a Single Product