solution

The Jurassic Classics has four employees on its sales team and uses a compensation that provides each person with a base salary of $48,000 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 $3,000,000. 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 $84,000 and the commission would be eliminated.

Required:

1. Compute the total compensation of the sales team for all three options at $2,400,000, $3,000,000, and $3,400,000 of total sales.

	Sales Current Method Commission Only Salary Only $2,400,000 $3,000,000 $3,400,000

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? (Round your answer to the nearest whole dollar.)

	Point of Indifference Current versus commission only Current versus salary only