Solved

Scenario 18

question 197

Multiple Choice

Scenario 18.1 Use the following to answer the questions.
Jafrum, Inc. is a wholesale supplier of motorcycle accessories, clothing, and tools to various motorcycle retail stores around the country. Jafrum does not manufacture these items, but sells them to other retailers and also sells its merchandise through its website. Sean Thompson is one of the salespeople for Jafrum, and is responsible for obtaining new customers, increasing sales to current customers, and visiting the retail stores throughout the country. Recently, he has been given the sales objective from Jafrum's management to increase sales dollars by 15% in the coming year by adding new customers. Sean's current compensation is based on a $1,000 per month draw, plus 5% of all sales over $100,000. His salary last year totaled $42,000. Management has given Sean the choice of going to a compensation plan where he will earn 15% of all sales, but no draw.
Refer to Scenario 18.1. Currently, Sean's compensation is based on the ____ plan; however, he is considering changing to the ____ plan.

Definitions:

Factory Equipment

Machinery and tools used in a manufacturing process to produce goods.

Indirect Material

Materials used in the production process that do not end up as part of the final product, such as lubricants for machinery.

Product Costs

Expenses directly associated with creating a product, including direct materials, direct labor, and manufacturing overhead costs.

Direct Materials

Raw materials that are directly traceable to the manufacturing of a product and constitute a significant portion of the production cost.