Modern Fun Corporation sells electronic games. Its five salesper

Modern Fun Corporation sells electronic games. Its five salespersons are currently being paid fixed salaries of $30,000 each; however, the sales manager has suggested that it might be more profitable to pay the salespersons on a straight commission basis. He has suggested a commission of 15% of sales. Current data for Modern Fun Corporation are as follows:

Sales volume . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000 units

Sales price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $40 per unit

Variable costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $29 per unit

Fixed costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $200,000

1. Assuming that Modern Fun Corporation has a target income of $50,000 for next year, which alternative is more attractive?

2. The sales manager believes that by switching to a commission basis, sales will increase

20%. What is the estimated profit under this assumption?


Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...

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