Question No. 3 CVP Applied: Revising Sales Incentives (5 Marks, 20 Minutes)

Data concerning Wislocki Corporation's single product appear below:

	Per Unit			Percent of Sales
Selling price	$	180			100	%
Variable expenses		45			25	%
Contribution margin	$	135			75	%

Fixed expenses are $1,048,000 per month. The company is currently selling 9400 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 $12 per unit. In exchange, the sales staff would accept an overall decrease in their salaries of $106,000 per month. The marketing manager predicts that introducing this sales incentive would increase monthly sales by 440 units.

Required:

What should be the overall effect on the company's monthly net operating income of this change?

Question No. 4: Absorption and Marginal Costing (5 Marks; 20 Minutes)

The Dorset Corporation produces and sells a single product. The following data refer to the year just completed:

Beginning inventory		0
Units produced		9,000
Units sold		7,000
Selling price per unit	$	47
Selling and administrative expenses:
Variable per unit	$	4
Fixed per year	$	58,000
Manufacturing costs:
Direct materials cost per unit	$	10
Direct labor cost per unit	$	6
Variable manufacturing overhead cost per unit	$	5
Fixed manufacturing overhead per year	$	90,000

Assume that direct labor is a variable cost.

Required:

1. Prepare an income statement for the year using absorption costing
2. Prepare an income statement for the year using variable costing
3. Reconcile the absorption costing and variable costing net operating income figures