Salmon Co. is deciding between two compensation plans. In Plan A, salaries are $100,000 and the commission is $2 per unit. In Plan B, salaries are $40,000 and the commission is $4 per unit.
Which of the following statements is true?
A) If expected sales are lower than the indifference point, Blackmon would prefer Plan B
B) Plan A has a lower breakeven point than Plan B
C) If Plan B is adopted, the degree of operating leverage will increase
D) The margin of safety will be larger if Plan A is adopted

Question

Quizplus · Accepted Answer

If expected sales are lower than the indifference point, Blackmon would prefer Plan B because Plan B has a lower fixed cost and a higher commission rate.

Salmon Co Is Deciding Between Two Compensation Plans