JJ Motors, Inc., employs 45 sales personnel to market its line of luxury automobiles. The average car sells for $23,000, and a 6% commission is paid t... Accounting MCQs | Accounting MCQs

JJ Motors, Inc., employs 45 sales personnel to market its line of luxury automobiles. The average car sells for $23,000, and a 6% commission is paid to the salesperson. JJ Motors is considering a change to a commission arrangement that would pay each salesperson a salary of $2,000 per month plus a commission of 2% of the sales made by that salesperson. The amount of total monthly car sales at which JJ Motors would be indifferent as to which plan to select is

$2,250,000$3,000,000$1,500,000$1,250,000Show Result

Correct - Your answer is correct.

Wrong - Your answer is wrong.

Detailed Answer

Answer (A) is correct. Given that X equals the cars sold, the indifference equation and its solution are as follows: ($23,000 × 6%)X = ($23,000 × 2%)X + (45 × $2,000)
$920X = 90,000
X = 97.8261 Cars
At a price of $23,000 each, 97.8261 cars will sell for $2,250,000. Another approach is to determine the sales per person at which $2,000 is equal to a 4% commission. This amount is $50,000 ($2,000 ÷ .04) per person, or $2,250,000 (45 × $50,000) for the entire sales force.