Question - Monterey Co. makes and sells a single product. The current selling price is $17 per unit. Variable expenses are $10.2 per unit, and fixed expenses total $33,680 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.
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 $0.75 per unit, assuming a sales volume of 5,100 units per month.
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 $0.75 per unit, assuming a sales volume of 6,200 units per month.
Assuming that the sales volume of 6,200 units per month achieved 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?
Which strategy would you recommend?
Plan to change the sales force compensation.
Plan to increase advertising expenses.