The sales manager believes that by switching to a commission basis, sales will increase 20%.?

Question

According to the information below If that is the case, which alternative is more attractive? (Assume that sales are expected to remainat 15,000 units under the fixed salary alternative.)

C-V-P Analysis—Changes in Variables
Modern Fun Corporation sells electronic games. Its three salespersons are currently being paid
fixed salaries of $30,000 each; however, the sales manager has suggested that it might be more
profitable to pay the salespersons on a straight commission basis. He has suggested a commission
of 15% of sales. Current data for Modern Fun Corporation are as follows:
Sales volume . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,000 units
Sales price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $40 per unit
Variable costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $29 per unit
Fixed costs . .

Answer 1

3000 incremental units times 11=33000 profit

720000*.15= 108000 salary for the commission model.
The non-commission model was 90000 salary.
The difference 108000 minus 90000 =18000 difference in salary.

33000 profit minus 18000 incremental salary =15000 more profit for the commission model as opposed to the non commission model.


Based on that, you should go to commissions.

Answer 2

It depends. If your sales are 15,000 units per year, that would be a salary of 40,000 based on 15% commision. That doesn't include if variable cost is cost to you. Typically most companies that sell a product, eventually put their employees on commision, though usually with some sort of base salary or hourly rate. Why? It's easier to get someone to sell more of your products when you approach them this way- Here's what I'm going to pay you for working here, but the more you do for me, the more I'll pay you. Do you want to make 30,000, fine, do you want to make 50,000, go for it, do you want 65,000, let's make it happen.

Answer 3

I say go for it! If you know your product and are helpful you will make good money. I have always worked being paid a commission or similarly.

Answer 4

that is cool