JJ Motors Inc.employs 45 sales personnel to market their line of luxury automobiles.The average car sells for $23,000,and a 6 percent commission is paid to the salesperson.JJ Motors is considering a change to the commission arrangement where the company would pay each salesperson a salary of $2,000 per month plus a commission of 2 percent 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

Question

Quizplus · Accepted Answer

The total commission paid under the current plan is 6% of $23,000 * 45 = $60,900. Under the new plan, the total commission paid would be 2% of sales. To find the indifference point, we need to find the sales level at which the total commission under both plans is equal. Let S be the sales level. Then, 0.06 * 23,000 * 45 = 0.02 * S, which gives S = $2,250,000.