Question: V is a company which supplies quality floor-covering materials. These materials attract a high market price and are extremely hardwearing. They have been developed mainly for use within industry rather than in homes. V pays its sales staff a basic salary plus a commission based on the volume of sales made. This has resulted in some of its sales staff achieving very high earnings. M is the sales director and has become concerned recently at the number of retail shops which have been supplied with materials by V which have then returned large quantities of unsold stocks and requested a refund.
These shops are mainly engaged in supplying homes rather than industrial customers. M has turned to you, as management accountant, for advice. He thinks that an alternative method of paying the sales staff will help to overcome the problem of the material being sold to inappropriate retail outlets. In the future, he proposes that the sales staff be paid on the basis of basic salary with the addition of a commission based on repeat customer purchases.