Winners Ltd. sell matching hat, scarf and gloves sets to ‘cash and carry’

wholesalers at £6.00 per set using sales personnel who are rewarded on a fixed salary plus commission basis. The following forecasts are made for the year ending 31 December 19_2:

Consideration is being given to adjusting the rates of commission payable and to the possibility of abolishing commission and increasing basic salaries.
Required:
On the assumption that all expense and revenue relationships would remain unchanged except where specified, answer each of the following questions independently:

(a) If commission were increased to 35p per set, what increase in sales value and sales units would be necessary to break even? (6 marks)

(b) What would be the net profit or loss if (i) 35 000 sets were sold with commission unchanged at 30p per set;
(ii) 55 000 sets were sold but each salesman were to receive 30p plus an additional commission of 10p per set sold in excess of the break-even point?

(c) If commission were discontinued and salaries increased by a total of £9 595 per year (i) what would be the value of sales necessary to achieve break-even point?

(ii) how many units would need to be sold to achieve a target net profit of £17 000 for the year?

(d) State one reason for, and one against, the company adopting the plan (given in

(c) ) in times of fluctuating demand rather than the original salary plus commission plan.

Transcribed Image Text:

Invoice cost to Winners Ltd. per set Sales commission per set sold Fixed expenses F Salaries F Rent F Other 4.70 0.30 21 220 6 600 8 280 36 100