Fairmount Corporation Produces and Sells a Single Product Fixed Costs Are $516,000 Per Month

question 147

Essay

Fairmount Corporation produces and sells a single product. Data concerning that product appear below:
$$\begin{array} { l r c } & \text { Per Unit } & \text { Percent of Sales } \\\text { Selling price } & \$ 12 0& 100 \% \\\text { Variable costs } & 3 6 & 3 0 \% \\\text { Contribution margin }&\$ 4 & 70 \% \\\end{array}$$
Fixed costs are $516,000 per month. The company is currently selling 7,000 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 $9 per unit. In exchange, the sales staff would accept an overall decrease in their salaries of $55,000 per month. 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 operating profit of these changes?

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Definitions:

Bandura's Concept

Refers to Albert Bandura's Social Learning Theory, emphasizing that people learn from one another through observation, imitation, and modeling.

Breastfeeding Experiences

Refers to the range of feelings, practices, and outcomes associated with the act of feeding an infant or young child with milk from a woman's breast.

Sullivan's Needs

Harry Stack Sullivan's theory emphasizing interpersonal relationships and the need for interaction to avoid feelings of loneliness and anxiety.

Skinner's Radical

Refers to B.F. Skinner's radical behaviorism, emphasizing the external behaviors of people and their responses to the environment over internal processes.