Glade, Inc. is trying to decide whether to increase the commission-based pay of

Question

Glade, Inc. is trying to decide whether to increase the commission-based pay of its salespeople. Currently, each of its five salespeople earns a 7% commission on the units they sell for $100 each, plus a fixed salary of $40,100 per person. Glade hopes that by increasing commissions to 12% and decreasing each salesperson’s salary to $21,500, sales will increase because salespeople will be more motivated. Currently, sales are 17,000 units. Glade’s other fixed costs, NOT including the salespeople’s salaries, total $583,000. Glade’s other variable costs, NOT including commissions, total $16 per unit. a. What is the current profit? b. What is the current break-even point in units? (Round your answer to the nearest whole number.) c. What would the break-even point in units be if commissions are increased and salaries decreased? (Round your answer to the nearest whole number.) d. If sales increase by 10,000 units, what will profit be under the new plan? e. At what sales level would Glade be indifferent between the lower-commission plan and the higher-commission plan?

Explanation / Answer

a. $ per unit $ Total (Unit*C) Unit Sold 17000 Selling Price Per unit 100 1700000 Less: Variable Cost Other Variable cost 16 272000 Sales commission 7% (100*7%*5 person) 35 595000 Total Variable cost 51 867000 Contribution Margin 49 833000 Less: FIxed Cost Other Fixed Cost 583000 Salary (40100*5) 200500 Total Fixed cost 783500 Profit (Contribution Margin-Fixed Cost) 49500 b. Break Even (Fixed Cost/Margin per unit) 783500/49 15990 c $ per unit $ Total (Unit*C) Unit Sold 17000 Selling Price Per unit 100 1700000 Less: Variable Cost Other Variable cost 16 272000 Sales commission 12% (100*12%*5 person) 60 1020000 Total Variable cost 76 1292000 Contribution Margin 24 408000 Less: FIxed Cost Other Fixed Cost 583000 Salary (21500*5) 107500 Total Fixed cost 690500 Profit (Contribution Margin-Fixed Cost) -282500 Break Even (Fixed Cost/Margin per unit) 690500/24 28771 d $ per unit $ Total (Unit*C) Unit Sold 27000 Selling Price Per unit 100 2700000 Less: Variable Cost Other Variable cost 16 432000 Sales commission 12% (100*12%*5 person) 60 1620000 Total Variable cost 76 2052000 Contribution Margin 24 648000 Less: FIxed Cost Other Fixed Cost 583000 Salary (21500*5) 107500 Total Fixed cost 690500 Profit (Contribution Margin-Fixed Cost) -42500 e Contribution at lower commission 49 182280 Contribution at Higherer commission 24 89280 Fixed Cost at lower 783500 Fixed Cost at higer 690500 To be indifference, let assume units are x 49x-783500=24x-690500 49x-24x=-690500+783500 25x=93000 x=3720 on 3720 units, he will be indifferent

Related Questions

Navigate

• Browse (All)
• Browse G
• Subjects

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