A Company, which employs salesman in each of its territories, has decided to use the following

standards in assessing salesmen’s performance:

a) Target sales are based on each territory’s annual potential. For territory 1, these are $18,00,000
p.a. and for territory 2, these are $29,50,000 p.a.
b) Each territory’s standard sales mix contribution is 32%.
c) i) Commission is payable at 3 ½ % of sales.
ii) If sales exceed 110% of target, an extra 1% of the excess is payable.
iii) If the contribution percentage is above standard, commission increases by 20% of the gain. (i.e.
(contribution % actual – Contribution % standard) x actual sales)
iv) If contribution percentage is below standard, commission decreases by 10% of the loss. (same
as above)
d) Standard salesmen’s expenses and travelling costs:
i) Expenses $20000 p.a.
ii) Mileage allowance at 0.02 kms per $ Of sales
iii) Travelling costs at $1.50 per km.

Actual results for the year were:

Sales Sales mix Kms. Expenses
contribution Run incurred
Territory 1 $24,00,000 29% 58,000 $29,000
Territory 2 $27,00,000 33% 42,000 $18,000

Required

a) Calculate (i) the standard profit for Territory 1 and 2 and (ii) the actual profit for Territory 1 and 2.
b) Calculate variances that show the performance of the sales man in each of the two territories.
Compare the performance of each sales man and give three brief conclusions that would be of value
to the sales manager.