JJ Motors Inc.employs 45 sales personnel to market its 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 old plan is 6% of $23,000 * 45 = $60,900. Under the new plan, the total commission paid would be 2% of total sales. The total sales at which the two plans would be indifferent is $60,900 / 0.02 = $3,045,000.