Forge,IncIs Trying to Decide Whether to Increase the Commission-Based Pay

question 60

Essay

Forge,Inc.is trying to decide whether to increase the commission-based pay of its salespeople.Currently,each of its ten salespeople earns a 10% commission on the units they sell for $90 each,plus a fixed salary of $30,000 each.Forge hopes that by increasing commissions to 20% and decreasing each salesperson's salary to $21,000,sales will increase because salespeople will be more motivated.Currently,sales are 12,000 units.Forge's other fixed costs,not including the salespeople's salaries,total $188,580.Forge's other variable costs,not including commissions,total $30 per unit.
a.What is current profit?
b.What is the current break-even point in units?
c.What would the break-even point in units be if commissions are increased and salaries decreased?
d.If sales increase by 1,000 units,what will profit be under the new plan?
e.At what sales level would Forge be indifferent between the lower-commission plan and the higher-commission plan?

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Definitions:

Spatial Neglect

A neurological disorder characterized by the failure to attend or respond to stimuli presented on the side opposite the brain lesion.

Right Hemisphere

The right half of the brain, which is associated with creative thought, spatial ability, and the processing of visual and musical information.

Left Hemisphere

The left side of the human brain, often associated with analytical thought, logic, language, and processing of serial sequences.

Suprachiasmatic Nucleus

A part of the brain located in the hypothalamus, responsible for controlling circadian rhythms.