1. Teasuzu Co. employs 45 sales personnel to market its sedan cars.

The average car sells for

P690,000 and a 6% commission is paid to the sales person. It is considering changing the scheme to a
commission arrangement that would pay each person a package of P30,000 plus a commission of 2%
of the sales made by the person. How much is the total monthly car sales (rounded off) at which
Teasuzu Co. would incur the same selling costs under the 2 alternative compensation plans?

(P690,000*6%)X = (P690,000*2%)X +
(45*P30,000)

P27,600X = P1,350,000
P27,600 P27,600
X = 48.9130

32.6087*P690,000 = P33,750,000

Another approach:

.06X = P30,000 + .02X

.04X = P30,000
.04 .04

X = P750,000

P750,000 * 45 = P33,750,00
To check:
At a sales volume of P33,750,000, a straight commission of 6% will result in a total payment of
P33,750,000 * 6% = P2,025,000.

At a sales volume of P33,750,000, a salary of P30,000 per month paid to each salesperson plus a
commission of 2% will result in a total payment of: (P30,000 * 45) + (2% * P33,750,000) =
P2,025,000.

2. When the projected sales level exceeds the indifference point in #1, would you recommend the
management of Teasuzu Co. to go ahead with the plan of changing the scheme to P30,000 + 2% of
sales?

Assume indifference point is P40,000,000.

Old commission formula:

P40,000,000 x 6% = P2,400,000
New commission formula:
(P30,000 x 45) + (2% x P40,000,000) = P1,350,000 + P800,000 = P2,150,000

Teasuzu Co. would prefer the new commission formula because the commission payout would be
lower.