Question

Glade, Inc. is trying to decide whether to increase the commission-based pay of its salespeople. Currently, each of its five salespeople earns a 9% commission on the units they sell for $100 each, plus a fixed salary of $40,200 per person. Glade hopes that by increasing commissions to 14% and decreasing each salesperson’s salary to $21,100, sales will increase because salespeople will be more motivated. Currently, sales are 20,000 units. Glade’s other fixed costs, NOT including the salespeople’s salaries, total $585,000. Glade’s other variable costs, NOT including commissions, total $20 per unit.

a. What is the current profit?

b. What is the current break-even point in units?

c. What would the break-even point in units be if commissions are increased and salaries decreased?

Answer 1

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Glade Inc.
Answer a	Amount $
Sell price	100.00
Less: Commission at 9%	9.00
Less: Variable cost per unit	20.00
Contribution per unit	71.00
Units sold	20,000.00
Total Contribution	1,420,000.00
Less: Fixed cost
Fixed salary	201,000.00
Other Fixed costs	585,000.00
Total Fixed cost	786,000.00
Current profit	634,000.00
Answer b	Amount $
Total Fixed cost	786,000.00
Contribution per unit	71.00
Break even even units	11,070.42
Answer c	Amount $
Sell price	100.00
Less: Commission at 14%	14.00
Less: Variable cost per unit	20.00
Contribution per unit	66.00
Fixed salary	105,500.00
Other Fixed costs	585,000.00
Total Fixed cost	690,500.00
Break even even units	10,462.12