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QUESTION
The management of a packaging materials company has decided to change how the company calculates the sales credit that forms the basis for...
The management of a packaging materials company has decided to change how the company calculates the sales credit that forms the basis for determining the sales commissions for their sales force. Rather than use a salesperson's sales revenue to calculate his/her sales credit, management now uses the profit-based compensation formula discussed in the chapter. To calculate the profitability factor, management uses the firm's average contribution margin of 25 percent.
- For a product with a target price of $500 per unit, calculate a salesperson's sales credit for selling 10 units of the product at a price of (1) $450 per unit, (2) $500 per unit, and (3) $550 per unit.
- What are the effects that this change is likely to cause on the behavior of the sales force? How might these effects be beneficial to the packaging materials company?
