The Jurassic Classics has four employees on its sales team and uses a compensation that provides each
person with a base salary of $ per year and the opportunity to earn commission on sales. The
current commission is of gross sales, and sales for the most recent period were $
Management is considering making a change to the compensation system and wants to evaluate two
possible alternatives: going to a strictly commissionbased compensation system and going to purely
salarybased compensation. The strictly commissionbased method would eliminate the salary but raise
the commission to of sales. If the purely salarybased approach is adopted, the salary for each
person would rise to $ and the commission would be eliminated.
Award: points
Required:
Compute the total compensation of the sales team for all three options at $$
and $ of total sales.
What sales level would make management indifferent between the current compensation structure
and the strictly commissionbased structure? What is the point of indifference between the current
structure and the pure salarybased structure?
