Sannella Corporation produces and sells a single product. Data concerning that product appear below: Per Unit Percent of Sales Selling price $ 220 100 % Variable expenses 66 30 % Contribution margin $ 154 70 % Fixed expenses are $991,000 per month. The company is currently selling 8,000 units per month. 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 $74,000 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? Multiple Choice increase of $1,246,600 increase of $71,800 increase of $14,600 decrease of $133,400

Increase in net Operating income = $14,600

Explanation:

Sales

i. 8000 units X $220

=$1,760,000

ii. 8200 units X $220

=$1,804,000

Variables expenses

i. 8000 units X $66 = $528,000

ii8200 units X $72 = $631,400

Contribution margin

CM=Sales -Variables expenses

i. 1,760,000 - 528,000=

$1,232,000

ii. 1,804,000 - 631,400

=$1,172,000

Our Fixed expenses are

i. $991,000

ii. $917,000

Therefore Net operating income = Contribution margin - Fixed expenses

i. 1,232,000 - 991,000

=$241,000

ii. 1,172,600 - 917,000

=$255,600

From the answers above, there is an increase of $14,600 as a difference between $241,000 and $255,600 which are the Net Operating income.

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