Salmon Co Is Deciding Between Two Compensation Plans

question 125

Multiple Choice

Salmon Co. is deciding between two compensation plans. In Plan A, salaries are $100,000 and the commission is $2 per unit. In Plan B, salaries are $40,000 and the commission is $4 per unit.
Which of the following statements is true?

• A) If expected sales are lower than the indifference point, Blackmon would prefer Plan B
• B) Plan A has a lower breakeven point than Plan B
• C) If Plan B is adopted, the degree of operating leverage will increase
• D) The margin of safety will be larger if Plan A is adopted

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