Question: Monterey Co. makes and sells a single product. The current selling price is $14 per unit. Variable expenses are $8.4 per unit, and fixed expenses total $29,400 per month. (Unless otherwise stated, consider each requirement separately.)
Management is considering a change in the sales force compensation plan. Currently each of the firm's two salespeople is paid a salary of $2,500 per month.
g-1. Calculate the monthly operating income (or loss) that would result from changing the compensation plan to a salary of $400 per month, plus a commission of $0.85 per unit, assuming a sales volume of 5,250 units per month.
g-2. Calculate the monthly operating income (or loss) that would result from changing the compensation plan to a salary of $400 per month, plus a commission of $0.85 per unit, assuming a sales volume of 6,050 units per month.
h-1. Assuming that the sales volume of 6,050 units per month achieved in part g could also be achieved by increasing advertising by $1,000 per month instead of changing the sales force compensation plan. What would be the operating income or loss?
h-2. Which strategy would you recommend?
Plan to increase advertising expenses.
Plan to change the sales force compensation.