Figure 17-6 Figure 17-6 Shows Two Different Compensation Schemes for the Vortex

question 108

Multiple Choice

Figure 17-6

Figure 17-6 shows two different compensation schemes for the Vortex Vacuum Cleaner Company.
Under Scheme I, the firm pays a consistent wage of $2,500 per month to all its salespeople for sales up to 20 vacuum cleaners. For sales of 21-30 vacuum cleaners, its salespeople earn $125 per vacuum cleaner, with wages capped at $3,750 per month for sales over 30 vacuum cleaners. If a salesperson has three consecutive months of sales below 20 vacuum cleaners, the person loses his or her job.
Scheme II represents a straight commission, with salespeople earning a commission of $125 per vacuum cleaner sold, with no wage cap.
-Refer to Figure 17-6.Which of the following statements about Scheme II is false?

• A)It is likely to draw highly productive workers who see the opportunity to increase their wages.
• B)It could discourage less productive workers and induce them to leave the firm.
• C)It allows workers to increase their monthly wage without penalizing those who are content with their monthly wage.
• D)It is more risky for senior employees.

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Definitions:

Capital Lease

A long-term lease agreement that allows a lessee to use an asset while essentially treating it as if it were their own by recognizing it on their balance sheet.

Compounded Quarterly

The method of figuring out interest that includes both the original principal amount and the interest that has compounded from earlier periods, calculated every three months.

Long Term Liability

A financial obligation of a company that is due for a period exceeding one year, including bonds payable, long-term loans, lease obligations, and pension obligations.

Future Value

The amount of money an investment will grow to over a period of time at a specified interest or growth rate.