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 an overall decrease in their salaries of $103,000 per month. The marketing manager predicts that introducing this sales incentive would increase monthly sales by 470 units. What should be the overall effect on the company's monthly net operating income of this change?

The overall effect on the company's monthly net operating income of this change is $40,960

Explanation:

New contribution margin ($154 - $11)=143

New unit monthly sales (9,800 + 320)=10,120

New total contribution margin (10,120 units * 143 per unit)= 1,447,160

Present total contribution margin (9,800 units * 154 per unit)=1,509,200

Changes in total contribution margin=(62,040)

Plus Savings in sales person's salaries= 103,000

Change in net operating income          $40,960

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