Question

During a year, Mark’s monthly sales compensation ranged between $15,500 and $20,900 per month and units sold ranged between 1,100 and 1,900 units for those same months. Required: Use the high–low method to determine Mark’s monthly salary and commission rate per unit sold and then calculate the total number of units sold in a year when Mark’s total compensation amounted to $184,650. (Round your "Commission rate" to 2 decimal places.)

Answer 1

13,000 units.

Step-by-step explanation:

High-Low level method formula:

Variable Cost per unit = (Y2 - Y1) ÷ (X2 - X1)

y2 is the total cost at highest level of activity;

y1 is the total cost at lowest level of activity;

x2 are the number of units/labor hours etc. at highest level of activity; and

x1 are the number of units/labor hours etc. at lowest level of activity

= ($20,900 - $15,500) ÷ (1900 - 1100 )

= $6.75 per unit.

Mark’s monthly Salary = Total Compensation – Sales commission

= $20,900 - 1900 × $6.75

= $8,075

Calculation of the total number of units sold in a year when Mark's total compensation amounted to $184,650:

Sales Commission earned by Mark:

= Total Compensation - Mark’s yearly Salary

= $184,650 - ($8,075 × 12)

= $87,750

Calculation of total number of units sold in a year:

= Sales Commission earned during the year ÷ Sales Commission per unit

= 87,750 ÷ $6.75

= 13,000 units.