Product A:
Unit Sales 25600
Dollar Sales $1,920,000.00
Unit Costs $1,075,200.00
Sales Commissions $57,600.00

Product B:
Unit Sales 19300
Dollar Sales $3,088,000.00
Unit Costs $1,524,700.00
Sales Commissions $92,640.00

Product C:
Unit Sales 8100
Dollar Sales $1,825,500.00
Unit Costs $1,012,500.00
Sales Commissions $54,765.00

Totals
53000
6833500
3612400
205005

You own the Acme Co. and your goal is to maximize before tax profits.
You currently pay salespeople a base salary and a flat 3% commission on sales.
You sell three products. Above is some information on those products.
You have 9 salespeople. You pay them $22,000 salary and 10,000 benefits each.
This gives you $288,000 fixed sales costs. Your annual total fixed costs are $1,800,000 which includes fixed sales costs.
Unfortunately, your firm keeps losing the best salespeople. You are considering several options to combat this problem. These include:

1. Increase the commission to 5% or
2. Alter the commission structure to reflect the profitability of each product.
You think that if the total compensation plan is increased for the salesforce that your sales will increase 9% next year due to retaining the best people and increased motivation. Without the increase in sales compensation, you think sales will increase 4%.

a. What is your net profit before taxes this year?
b. What did you spend on total sales force compensation last year?
c. If no changes occur, what is your net profit before taxes next year?
d. If you go to the flat 5% commission, what is net profit before taxes next year?
e. What are your unit contributions for Products A, B, and C:

1. This year
2. Next year with no changes in commission structure
3. next year if you go to a 5% commission?

f. Which plan is best for your firm? Explain your decision.
g. Since your goal is to maximize before tax profits next year, specifically how should you change the commission structure to retain your best salespeople and maximize net profit taxes? Be sure to explain your answer.

Product A: Unit Sales 25600 Dollar Sales $1,920,000.00 Unit Cos...