Managers of Pharoah Distributors are evaluating the compensation system for the companys sales personnel. Currently, the two salespeople have a combined salary of $53,800 per year and earn a 3% sales commission. The company is considering two alternatives to the current compensation system. The first alternative is to reduce total salaries to $21,900 and increase the sales commission to 5%. The second alternative is to eliminate the salaries and pay a 25% sales commission. Sales projections under each of the compensation systems are as follows:

Current system	$	919,000
Salary and 5% commission	$	1,138,000
25% commission	$	1,338,000

(a) Write the cost equations for the current compensation system and both alternative compensation structures. (Round percentages to 2 decimal places, e.g. 0.04. If the cost equation has no variable or fixed component, enter 0 for the amounts.)

Current system	= (enter unit cost rounded to 2 decimal places sales) + $enter a dollar amount
Salary and 5% commission	= (enter unit cost rounded to 2 decimal places sales) + $enter a dollar amount
25% commission	= (enter unit cost rounded to 2 decimal places sales) + $enter a dollar amount

(b) Given Pharoahs sales projections, and assuming that the cost of goods sold is equal to 30% of sales, which pay system would be the most profitable one for the company? Ignore all other costs. (Round percentages to 2 decimal places, e.g. 0.04 and final answers to 0 decimal places, 5,725.)

			Current system			Salary and 5% commission			25% commission
Sales revenue		$	enter a dollar amount		$	enter a dollar amount		$	enter a dollar amount
Cost of goods sold			enter a dollar amount			enter a dollar amount			enter a dollar amount
Gross profit			enter a subtotal of previous two amounts			enter a subtotal of previous two amounts			enter a subtotal of previous two amounts
Compensation expense			enter a dollar amount			enter a dollar amount			enter a dollar amount
Operating income		$	enter a total amount for this section		$	enter a total amount for this section		$	enter a total amount for this section