Chapter 6: CVP/Break-even/Contribution Margin

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

	Per Unit	Percent of Sales
Selling price	$	190			100	%
Variable expenses		57			30	%
Contribution margin	$	133			70	%

Fixed expenses are $1,046,000 per month. The company is currently selling 9,200 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 $14 per unit. In exchange, the sales staff would accept an overall decrease in their salaries of $108,000 per month. The marketing manager predicts that introducing this sales incentive would increase monthly sales by 420 units. What should be the overall effect on the company's monthly net operating income of this change.