Assume that a general economic downturn occurred during year 2, with product demand falling from 6,000 to 5,000 units. Determine the percentage decrease in company net income if Consolidated had adopted Plan B. Consolidated Industries is studying the addition of a new valve to its product line. The valve would be used bymanufacturers of irrigation equipment. The company anticipates starting with a relatively low sales volume and thenboosting demand over the next several years. A new salesperson must be hired because Consolidated's current salesforce is working at capacity. Two compensation plans are under consideration:Plan A: An annual salary of $22,000 plus a 10% commission based on gross dollar sales.Plan B: An annual salary of $66,000 and no commission.Consolidated Industries will purchase the valve for $50 and sell it for $80. Anticipated demand during the first year is6,000 units. (In the following requirements, ignore income taxes.)

Answered: Consolidated Industries is studying the…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

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Assume that a general economic downturn occurred during year 2, with product demand falling from 6,000 to 5,000 units. Determine the percentage decrease in company net income if Consolidated had adopted Plan B.

Consolidated Industries is studying the addition of a new valve to its product line. The valve would be used by
manufacturers of irrigation equipment. The company anticipates starting with a relatively low sales volume and then
boosting demand over the next several years. A new salesperson must be hired because Consolidated's current sales
force is working at capacity. Two compensation plans are under consideration:
Plan A: An annual salary of $22,000 plus a 10% commission based on gross dollar sales.
Plan B: An annual salary of $66,000 and no commission.
Consolidated Industries will purchase the valve for $50 and sell it for $80. Anticipated demand during the first year is
6,000 units. (In the following requirements, ignore income taxes.)

Expert Solution

Step 1: Introduce to income statement

Income statement is one of the financial statements that shows the profitability, total revenue and total expenses of a company during the period. Contribution margin is the difference between sales and variable costs. Net income is the difference between contribution margin and fixed costs.

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