Owly Corporation's beverage division produces and sells a hard seltzer, Starwings. The current wholesale price of Starwings in $21 per 12-pack. Owly currently sells 40,000 12-packs a quarter. Variable manufacturing costs per 12-pack are 38% of the current selling price. Owly pays the Starwings sales people a 3% commission on every sales dollar of Starwings they generate. Current fixed costs per quarter for Starwings are $315,000.

To increase sales and profitability of Starwings, Owly is considering lowering the wholesale price from $21 to $18. Along with this reduction in selling price, Owly would also change the way the Starwings sales people are compensated. Owly will up the sales commission on every sales dollar to 7% and reduce the sales peoples' base salary resulting in a reduction of quarterly fixed costs by $25,000. The dollar amount of variable manufacturing costs will not change. Owly believes the lowering of the selling price and the change in sales peoples' compensation mix will result in a 25% increase in sales per quarter.

A. What is the net operating income under the current selling price and sales people compensation system?

B. What is the net operating income for the proposed reduction in selling price and change to the sales people compensation system?

C. What is the dollar advantage (disadvantage) of adopting the lower sales price and change to sales people compensation system compared to the current selling price and sales people compensation?