Super Sales Company is the exclusive distributor for a specialized smart watch. The following shows their results for the most recent year TOTAL unit sales 1400 S Sales $280,000 7 Variable expenses: 3 Cost of goods sold 50,400 9 Sales commissions 56,000 10 Total variable expenses 106,400 11 Contribution margin 173,600 12 Fixed expenses: 13 Advertising 42,000 14 Salaries 24,000 15 Total fixed expenses 66,000 16 Operating income $ 107,600 17 18 19 20 Required: 21 1 The sales manager is convinced that if all of the following changes are implemente next 22 year, the combined impact on unit sales will be an increase of 50%: (6 marks) i decrease the unit selling price by $15 24 ii increase the unit sales commission to 25% of unit selling price 25 ili increase the annual sales salaries by $25,000 26 iv increase the advertising budget by $1,000 per month 27 Calculate the impact on operating income of making all of these changes for the next year. 28 (show calculations) 29 23 30 2 a. Refer to the original data. Calculate the degree of operating leverage. (1 mark) b. The managers are considering elimating the sales commission and increasing salaries to $80,000. Calculate the degree of operating leverage if this change is made. (2 marks) SE 31 32 33 B4 65 66 c. What factors should management consider when deciding whether to make this change to a higher fixed cost structure