Currently the $4 per T-shirt of VSG&A represents the sales commission paid to the sales force. In 2022 the sales force was paid 100% based on commission. Elements printing company is considering changing the compensation structure for the sales force in 2023. The new compensation would provide a base salary and a reduced sales commission of $1 per T-Shirt. Total base salaries for the sales force would be $300,000.

 

(a) If management had changed the sales force compensation structure in 2022, assuming nothing else changes, what would have been the operating income in 2022?

 

(b) Using the new sales force compensation structure, how many additional units will the sales force have to sell to have the operating income in 2023 be equal to the operating income in 2022?

 

Selling price (P) T-shirts sold (QS) Variable costs per unit: DM Direct labor VMOH VSG&A Total variable costs per unit (v): Fixed costs: FMOH FSG&A Total Fixed costs (F): Year 2022 $20 95,000 $7 $5 $2 $4 $80,000 $30,000 $18.00 $110,000