Problem 5-10 Below is a variable costing income statement for Trio Office Suppli

Question

Problem 5-10 Below is a variable costing income statement for Trio Office Supplies, a company well known for its quality high-volume automatic staplers. For the coming year, the company is considering hiring 2 additional sales representatives at $74,800 each for base salary plus 5 percent of their sales for commissions (assume this is the only increase in variable selling expense). The company anticipates that each sales representative will generate $408,000 of incremental sales. Calculate the impact on profit of the proposed hiring decision. Should the company hire the 2 additional sales representatives?

Explanation / Answer

Hi,

Please find the answer as follows:

Part A:

Answer is Profit Increases by 258400

Part B:

Company should hire the 2 sales representatives.

Thanks.

Additional Sales (408000*2) 816000 Less Variable Cost of Goods Sold (408000*2*13518000/30040000) 367200 Variable Selling Expense (408000*2*.05) 40800 Incremental Contribution 408000 Less Fixed Administrative Expense (74800*2) 149600 Incremental Profit 258400

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