Question

If a firm manager has a base salary of $100,000 and also receives 5 percent of all profits, what percentage of his/her final income will be from a profit-sharing plan when profit equals $1,500,000

Answer 1

The correct answer is 42.86%.

Step-by-step explanation:

According to the scenario, the given data are as follows:

Base salary = $100,000

Extra earnings = 5% of all profit

Total Profit = $1,500,000

So, first we calculate the total earning received by the manager.

So, Total Earning = Base Salary + 5% of $1,500,000

= $100,000 + $75,000

= $175,000

Now, we can calculate the percentage of his/her final income from a profit-sharing plan by using following formula:

Percentage of final income = (Share in profit ÷ Total earning) × 100

= ($75,000 ÷$175,000) × 100

= 42.86%