Management believes that monthly sales should average approximately $375,000. Pr

Question

Management believes that monthly sales should average approximately $375,000. Prepare a contribution type income statement using 1) the current cost structure model (the model that includes salaries but no commissions) and 2) a second contribution type income statement using the proposed (fixed salary plus commission) model. 6. From the employee perspective, what level of monthly sales dollars must the company achieve so that their monthly compensation under the combination fixed salary/commission model is equal to the current monthly fixed salary amount (currently $38,000). What are the pros and cons of making the proposed compensation structure change, focus on breakeven point, impact on employee morales/motivation, MSM operating profit at different sales levels, etc.

The company sells clothing for young adults. The firm has normal monthly fixed costs of $90,000 ($38,000 of this amount is fixed salaries). The firm’s variable cost ratio averages 60%.

The firm is considering reducing monthly fixed salaries (currently $38,000) and using a combination salary and commission employee compensation plan. The reduction in fixed salaries would equal $10,000 monthly and be replaced with a 3% of gross sales commission payment. The 3% would be shared by all fixed salary employees.

Explanation / Answer

Answer: 1) the current cost structure model (the model that includes salaries but no commissions)

2) a second contribution type income statement using the proposed (fixed salary plus commission) model.

Answer:6

Desired sales=38000/40%=$95000

Particulars Amount ($) Sales 375000 Less: variable cost (60%) 225000 Contribution margin 150000 Less: Fixed cost Fixed salaries 38000 Other fixed cost 52000 Net income 60000

Related Questions

Navigate

• Browse (All)
• Browse M
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.