Decision Making Activities:Nardeb company is a software producer and sales company.currently, it pays all...Decision...

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Accounting

Decision Making Activities:
Nardeb company is a software producer and sales company.currently, it pays all sales staff on a fixed base salary. recentlymanagement has been considering switching sales staff across to anincentive based reward system. Nardeb's chief accountant Polly Xuhas prepared some summarized numbers. for senior management toconsider.
Michael Day comments that he cannot see the difference, as saleslevel and profit are unchanged. Xu argues that it is the differencein cost structure that matters. She argues that the entity isbetter off staying with the current structure, because the increasein profit is greater when sales levels increase than it would bewith the incentive rewards..
with fixed rewards with incentive rewards
sales 2500000 2500000
variable costs 1500000 2000000
contribution margin 1000000
500000
fixed costs 750000 250000
profit 250000 250000
a. Explain the basis of Polly Xu's argument
b. calculate the contribution margin ratio under eachalternative.
c. if sales were to increase by 10%, which alternative wouldproduce the highest increase in profit?
d. prepare a statement of profit or loss for eachalternative.

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In: AccountingDecision Making Activities:Nardeb company is a software producer and sales company.currently, it pays all...Decision Making Activities:Nardeb company is a software producer and sales company.currently, it pays all sales staff on a fixed base salary. recentlymanagement has been considering switching sales staff across to anincentive based reward system. Nardeb's chief accountant Polly Xuhas prepared some summarized numbers. for senior management toconsider.Michael Day comments that he cannot see the difference, as saleslevel and profit are unchanged. Xu argues that it is the differencein cost structure that matters. She argues that the entity isbetter off staying with the current structure, because the increasein profit is greater when sales levels increase than it would bewith the incentive rewards..with fixed rewardswith incentive rewardssales25000002500000variable costs15000002000000contribution margin1000000500000fixed costs750000250000profit250000250000a. Explain the basis of Polly Xu's argumentb. calculate the contribution margin ratio under eachalternative.c. if sales were to increase by 10%, which alternative wouldproduce the highest increase in profit?d. prepare a statement of profit or loss for eachalternative.

	with fixed rewards	with incentive rewards
sales	2500000	2500000
variable costs	1500000	2000000
contribution margin	1000000	500000
fixed costs	750000	250000
profit	250000	250000