Question

Water World sells wake boards and water skis a111d pays commissions to their salespeople based on each product's sales price. Although the wake boards sell for a higher price than the skis, the skis have a higher contribution margin per unit than t he wake boards. Which of the following are true in reference to sales commissions? (Check all that apply.)

-The company should not pay sales commissions on these products.
-Sales commissions based on sales pr ice would be ideal to use under t hese circumstances.
-Salespersons will be motivated to sell more wake boards as t hey 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.

Answer 1

Sales commissions based on sales price would be ideal to use under these circumstances, as skis have a higher contribution margin per unit and are more profitable for the company.

Step-by-step explanation:

The statement that is true in reference to sales commissions is: Sales commissions based on sales price would be ideal to use under these circumstances.The wake boards have a higher sales price, but the skis have a higher contribution margin per unit. This means that the skis are more profitable for the company. Therefore, it would be ideal for the company to pay sales commissions based on sales price as this would incentivize the salespeople to sell more skis, which would generate higher profits for the company.

However, the statement that says 'The company would rather see more skis sold as it creates the higher profit per unit for the company' is also true. Although the wake boards have a higher sales price, selling more skis would generate higher profit due to the higher contribution margin per unit.It is important to align the commission structure with the company's profitability goals. Sales commissions based purely on the sales price may not be ideal if the goal is to maximize profits, as this might not incentivize the sales of the more profitable item.