Question
The Jurassic Classics has four employees on its sales team and uses a compensation that provides each person with a base salary of $42,400 per
The Jurassic Classics has four employees on its sales team and uses a compensation that provides each person with a base salary of $42,400 per year and the opportunity to earn commission on sales. The current commission is 5% of gross sales, and sales for the most recent period were $2,650,000. Management is considering making a change to the compensation system and wants to evaluate two possible alternatives: going to a strictly commission-based compensation system and going to purely salary-based compensation. The strictly commission-based method would eliminate the salary but raise the commission to 11% of sales. If the purely salary-based approach is adopted, the salary for each person would rise to $74,200 and the commission would be eliminated.
What sales level would make management indifferent between the current compensation structure and the strictly commission-based structure? What is the point of indifference between the current structure and the pure salary-based structure? (Round your answer to the nearest whole dollar.)
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