Hinsey Corporation produces and sells a single product. Data concerning the product appear below: Fixed expenses are $300,000 per month. The company is currently selling 4,000 units per month. Consider each of the following questions independently.
-This question is to be considered independently of all other questions relating to Hinsey 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 $11 per unit. In exchange, the sales staff would accept a decrease in their salaries of $37,000 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 200 units. What should be the overall effect on the company's monthly net operating income of this change?

Question

Hinsey Corporation produces and sells a single product. Data concerning the product appear below:  Fixed expenses are $300,000 per month. The company is currently selling 4,000 units per month. Consider each of the following questions independently.
-This question is to be considered independently of all other questions relating to Hinsey 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 $11 per unit. In exchange, the sales staff would accept a decrease in their salaries of $37,000 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 200 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 revenue from 200 additional units is offset by the new commission costs and the savings from reduced salaries, resulting in a net increase of $8,400 in monthly net operating income.

Hinsey Corporation Produces and Sells a Single Product