Question

In order to motivate its salespersons to generate greater profits, the sales department of a household goods company announces that five percent of the purchase price of each product sold will be paid to them. Which of the following compensation plans has the company adopted?

a) Base salary
b) Commission
c) Profit-sharing
d) Bonus

Answer 1

The household goods company has adopted a commission-based compensation plan for its salespersons, where they earn five percent of the purchase price for each product sold.

Step-by-step explanation:

The compensation plan adopted by the household goods company for its salespersons is commission. This system pays the salespersons a percentage of the sales they make, which in this case is five percent of the purchase price for each product sold. This kind of plan provides a direct incentive for salespeople to increase sales because their earnings are directly tied to the amount of product they sell.