80.2K

Verified Solution

Link Copied!

[The following information applies to the questions displayed below.] 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 $31,000 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. g-1. 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 $0.85 per unit, assuming a sales volume of 5,000 units per month. (Do not round intermediate calculations.)

g-2. 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 $0.85 per unit, assuming a sales volume of 6,200 units per month. (Do not round intermediate calculations. Losses should be indicated by a minus sign.)

h-1. Assuming that the sales volume of 6,200 units per month achieved in part g 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? (Do not round intermediate calculations. Losses should be indicated by a minus sign.)

h-2. Which strategy would you recommend?

• Plan to change the sales force compensation.

• Plan to increase advertising expenses.

Answer & Explanation Solved by verified expert

See Answer