Fairmount Corporation produces and sells a single product. Data concerning that product
appear below:                                 

                                  per unit     percent of sales

Selling price                $ 120         100 %  
Variable costs                   36          30 %  
Contribution margin    $ 84          70 %  

Fixed costs are $516,000 per month. The company is currently selling 7,000 units per month.

Required:
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 an overall decrease in their salaries of $55,000 per month. 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 operating profit of these changes?

Answer rating: 100% (QA)

Answer The overall effect net operating income per ... View the full answer