Duncan Enterprises is considering building a new plant in Canada.They predict sales at the new plant to be 50,000 units at $10.00/unit.Below is a listing of estimated expenses: $$\begin{array} { | l | c | c | }
\hline \text { Category } & \begin{array} { c }
\text { Total Annual } \
\text { Expenses }
\end{array} & \begin{array} { c }
\text { \% of Annual Expense } \
\text { that are Fixed }
\end{array} \
\hline \text { Materials } & \$ 50,000 & 10 \% \
\hline \text { Labor } & \$ 90,000 & 20 \% \
\hline \text { Overhead } & \$ 40,000 & 30 \% \
\hline \text { Marketing/Admin } & \$ 20,000 & 50 \% \
\hline
\end{array}$$ A Canadian firm was contracted to sell the product and will receive a commission of 20% of the sales price.No U.S.home office expenses will be allocated to the new facility.
How much does the Canadian contractor expect to make in commissions?

Question

Duncan Enterprises is considering building a new plant in Canada.They predict sales at the new plant to be 50,000 units at $10.00/unit.Below is a listing of estimated expenses: $$\begin{array} { | l | c | c | } 
\hline \text { Category } & \begin{array} { c } 
\text { Total Annual } \
\text { Expenses }
\end{array} & \begin{array} { c } 
\text { \% of Annual Expense } \
\text { that are Fixed }
\end{array} \
\hline \text { Materials } & \$ 50,000 & 10 \% \
\hline \text { Labor } & \$ 90,000 & 20 \% \
\hline \text { Overhead } & \$ 40,000 & 30 \% \
\hline \text { Marketing/Admin } & \$ 20,000 & 50 \% \
\hline
\end{array}$$ A Canadian firm was contracted to sell the product and will receive a commission of 20% of the sales price.No U.S.home office expenses will be allocated to the new facility.
How much does the Canadian contractor expect to make in commissions?

Quizplus · Accepted Answer

The commission rate is 20% of the sales price, which is $10.00/unit. Therefore, the Canadian contractor will make 20% * $10.00 = $2.00 per unit sold. With predicted sales of 50,000 units, the contractor can expect to make $2.00 * 50,000 = $100,000 in commissions. However, the question only asks for the commission amount, which is $100,000, so the best choice is B.

Duncan Enterprises Is Considering Building a New Plant in Canada