The Ezell Firm is trying to decide whether to convert its sales staff's pay to commission basis instead of the firxed salaires it currently patys. The following information is available:
Price per unit $100
Variable cost per unit 35
Current toal fixed costs (including fixed sales salaries) $200,000
Total fixed costs EXCLUDING fixed sales salaries $140,000
Proposed commission 20% of selling price
At what level of sales (in units) will operating profit be the same under both the (1) current fixed salary compensation and (2) the new commission based metho of compensation? (This is a point of indifference calculation.)
a) 3,000 units
b) 7,000
c) the answer cannot be determined with this information
d) 30,000 units