Café, based in Seattle, Washington, is a rapidly growing family business that offers a line of distinctive coffee products to local and regional coffee shops. Assume founder and president Frasier Crane is reviewing the company's sales force compensation plan. Currently, the company pays its three experienced sales staff members a salary based on years of service, past contributions to the company, and so on. Niles Crane, a new sales trainee and brother of Frasier Crane, is paid a more modest salary. Monthly sales and salary data for each employee are as follows:

Niles Crane has shown great promise during the past year, and Frasier Crane believes that a substantial raise is clearly justified. At the same time, some adjustment to the compensation paid to other sales personnel also seems appropriate. Frasier Crane is considering changing from the current compensation plan to one based on a 5 percent commission. He sees such a plan as being fairer to the parties involved and believes it would also provide strong incentives for needed market expansion.
A. Calculate Café's salary expense for each employee expressed as a percentage of the monthly sales generated by that individual.
B. Calculate monthly income for each employee under a 5 percent of monthly sales commission-based system.
C. Will a commission-based plan result in efficient relative salaries, efficient salary levels, orboth?

  • CreatedFebruary 13, 2015
  • Files Included
Post your question