Question

Marcus can choose between a monthly salary

of $1,500 plus 5.5% of sales or $2,400 plus 3% of sales. He expects sales
between $5,000 and $10,000 a month. Which salary option should he
choose? Explain

Answer 1

Marcus can choose between a monthly salary of $1,500 plus 5.5% of sales or $2,400 plus 3% of sales. He expects sales between $5,000 and $10,000 a month. Which salary option should he choose? Explain.

Explanation:

Answer 2

Marcus should choose $2,400 plus 3% of sales.

His salary is composed of a fixed salary and a variable salary.

Fixed Salary + Variable Salary = Monthly Salary
2400 150 (3% of 5k) = 2350 - minimum salary he'll receive
2400 300 (3% of 10k) = 2700 - maximum salary he'll receive

VS

Fixed Salary + Variable Salary = Monthly Salary
1500 275 (5.5% of 5k) = 1775 - minimum salary he'll receive
1500 550 (5.5% of 10k) = 2,050 - maximum salary he'll receive

As you can see, despite the high percentage of sales offered, it is not a good option because the fixed salary is low as compared to the other option. Even the maximum salary he'll receive under the option $1500 is way lower than the minimum salary he'll receive under the option $2400.