Required: 1. Compute the total compensation of the sales team for all three options at $2,320,000, $2,900,000, and $3,320,000 of total sales. 2. What sales level would make management indifferent between the current compensation structure and the strictly commission-based structure? What is the point of indifference between the current structure and the pure salary-based structure?
Required: 1. Compute the total compensation of the sales team for all three options at $2,320,000, $2,900,000, and $3,320,000 of total sales. 2. What sales level would make management indifferent between the current compensation structure and the strictly commission-based structure? What is the point of indifference between the current structure and the pure salary-based structure?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Dinesh
![Required information
[The following information applies to the questions displayed below.]
The Jurassic Classics has four employees on its sales team and uses a compensation that provides each
person with a base salary of $46,400 per year and the opportunity to earn commission on sales. The current
commission is 5% of gross sales, and sales for the most recent period were $2,900,000. Management is
considering making a change to the compensation system and wants to evaluate two possible alternatives:
going to a strictly commission-based compensation system and going to purely salary-based compensation.
The strictly commission-based method would eliminate the salary but raise the commission to 11% of sales. If
the purely salary-based approach is adopted, the salary for each person would rise to $81,200 and the
commission would be eliminated.
Required:
1. Compute the total compensation of the sales team for all three options at $2,320,000, $2,900,000, and $3,320,000 of total
sales.
2. What sales level would make management indifferent between the current compensation structure and the strictly
commission-based structure? What is the point of indifference between the current structure and the pure salary-based
structure?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F90a68c9f-3789-4214-a21a-1fb724406fb6%2F8f09b4be-d9b2-40da-aed2-c5416aebc53d%2F445vi8_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Required information
[The following information applies to the questions displayed below.]
The Jurassic Classics has four employees on its sales team and uses a compensation that provides each
person with a base salary of $46,400 per year and the opportunity to earn commission on sales. The current
commission is 5% of gross sales, and sales for the most recent period were $2,900,000. Management is
considering making a change to the compensation system and wants to evaluate two possible alternatives:
going to a strictly commission-based compensation system and going to purely salary-based compensation.
The strictly commission-based method would eliminate the salary but raise the commission to 11% of sales. If
the purely salary-based approach is adopted, the salary for each person would rise to $81,200 and the
commission would be eliminated.
Required:
1. Compute the total compensation of the sales team for all three options at $2,320,000, $2,900,000, and $3,320,000 of total
sales.
2. What sales level would make management indifferent between the current compensation structure and the strictly
commission-based structure? What is the point of indifference between the current structure and the pure salary-based
structure?
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