Refer to requirement 3 of Problem 3- 28. In this problem, assume the role of the owner of Dress4Less.

Required

1. Calculate the number of units sold at which the owner of Dress4Less would be indifferent between the original salary- plus- commissions plan for salespeople and the higher fixed- salaries- only plan.

2. As owner, which sales compensation plan would you choose if forecasted annual sales of the new store were at least 12,000 units? What do you think of the motivational effect on sales of your chosen compensation plan?

3. Suppose the target operating income is $ 180,000. How many units must be sold to reach the target operating income under

(a) The original salary- plus- commissions plan and

(b) The higher- fixed- salaries- only plan? Which method would you prefer? Explain briefly.

4. You open the new store on January 1, 2013, with the original salary- plus- commission compensation plan in place. Because you expect the cost of the suits to rise due to inflation, you place a firm bulk order for 20,000 suits and lock in the $ 120.00 price per unit. But, toward the end of the year, only 18,000 suits are sold, and you authorize a markdown of the remaining inventory to $ 100 per unit. Finally, all units are sold. Salespeople, as usual, get paid a commission of 5% of revenues. What is the annual operating income for the store?