Question

Water World sells wake boards and water skis and pays sales commissions based on product sales price. The wake boards sell for a higher price than the skis and the skis have a higher contribution margin per unit than the wake boards. Which of the following are true? The company would rather see more skis sold as it creates the higher profit per unit for the company. Sales commissions based on sales price would be ideal to use under these circumstances. Salespersons will be motivated to sell more wake boards as they will create a higher commission per unit for them. The company should not pay sales commissions on these products.

Answer 1

Salespersons will be motivated to sell more wake boards as they will create a higher commission per unit for them.

The company would rather see more skis sold as it creates the higher profit per unit for the company.

Step-by-step explanation:

As from the company's perspective the sales of skies shall be more, as it offers higher revenue per unit, in form of higher contribution than that of boards per unit, the company estimates to sell more of these units.

Further, as the sales commission is based on the price of article sold, and boards have higher selling price,

As sales commission is to be earned by individual acting as agent will sell more units of boards to get higher commission.