Response to the following problem:
Custom Kitchens is opening early next year. Kate Royer, the owner, is considering two plans for obtaining the plant assets and the sales force needed for operations.
Plan 1 calls for purchasing all equipment and paying the sales force straight salaries.
Under plan 2, Custom Kitchens would lease equipment month by month and pay the sales force low salaries but give them a big part of their pay in commissions.
Discuss the effects of the two plans on variable expenses, fixed expenses, breakeven sales, and likely profits for a new business in the start-up stage. Indicate which plan you favor for Custom Kitchens.