The Jurassic Classics has four employees on its sales team and uses a compensation that provides each person with a base salary of $49,600 per year and the opportunity to earn commission on sales. The current commission is 5% of gross sales, and sales for the most recent period were $3,100,000. Management is considering making a change to the compensation system and wants to evaluate two possible alternatives: going to a strictly commission-based compensation system and going to purely salary-based compensation. The strictly commission-based method would eliminate the salary but raise the commission to 11% of sales. If the purely salary-based approach is adopted, the salary for each person would rise to $86,800 and the commission would be eliminated. Required:
a. Compute the total compensation of the sales team for all three options et $2,320,000, $2,900,000, and $3,320,000 of total sales.
b. What sales level would make management indifferent between the current compensation structure end the strictly commission- based structure? What is the point Of indifference between the current structure and the pure salary-based Structure?