Question

Monterey Co. makes and sells a single product. The current selling price is $18 per unit. Variable expenses are $10.8 per unit, and fixed expenses total $34,360 per month. (Unless otherwise stated, consider each requirement separately.)

Management is considering a change in the sales force compensation plan. Currently each of the firm's two salespeople is paid a salary of $2,500 per month. g-1. Calculate the monthly operating income (or loss) that would result from changing the compensation plan to a salary of $400 per month, plus a commission of $0.85 per unit, assuming a sales volume of 5,050 units per month. (Do not round intermediate calculations.) g-2. Calculate the monthly operating income (or loss) that would result from changing the compensation plan to a salary of $400 per month, plus a commission of $0.85 per unit, assuming a sales volume of 6,400 units per month. (Do not round intermediate calculations. Losses should be indicated by a minus sign.) h-1. Assuming that the sales volume of 6,400 units per month achieved in part g could also be achieved by increasing advertising by $1,000 per month instead of changing the sales force compensation plan. What would be the operating income or loss? (Do not round intermediate calculations. Losses should be indicated by a minus sign.) h-2. Which strategy would you recommend? Plan to change the sales force compensation. Plan to increase advertising expenses.

Answer 1