Wertman Corporation produces and sells a single product with the following characteristics: The company is currently selling 3,000 units per month. Fixed expenses are $215,000 per month. Consider each of the following questions independently.
-This question is to be considered independently of all other questions relating to Wertman 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 $20 per unit. In exchange, the sales staff would accept a decrease in their salaries of $52,000 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 300 units. What should be the overall effect on the company's monthly net operating income of this change?

Question

Wertman Corporation produces and sells a single product with the following characteristics:  The company is currently selling 3,000 units per month. Fixed expenses are $215,000 per month. Consider each of the following questions independently.
-This question is to be considered independently of all other questions relating to Wertman 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 $20 per unit. In exchange, the sales staff would accept a decrease in their salaries of $52,000 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 300 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 300 units results in additional revenue, but also incurs additional commission costs. The savings from reduced salaries partially offsets these costs. The net effect is an increase in net operating income by $11,200.

Wertman Corporation Produces and Sells a Single Product with the Following