Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

4. Merchandising Operations

Net Sales

Financial Accounting

4. Merchandising Operations

Net Sales

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Multiple Choice

A salesperson is offered the following compensation methods for one month: (A) a fixed salary of $2,500, (B) a 5% commission on net sales, (C) a $1,000 salary plus a 3% commission on net sales, and (D) a $2,000 salary plus a 2% commission on net sales. If net sales for the month are $40,000, which method will result in the highest earnings?

A fixed salary of $2,500

A $1,000 salary plus a 3% commission on net sales

A 5% commission on net sales

A $2,000 salary plus a 2% commission on net sales

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Verified step by step guidance

Step 1: Understand the problem by identifying the four compensation methods and the net sales amount ($40,000). The goal is to calculate the earnings for each method and compare them to determine the highest earnings.

Step 2: For Method A (fixed salary of $2,500), note that the earnings are fixed and do not depend on net sales. Therefore, the earnings for Method A are $2,500.

Step 3: For Method B (5% commission on net sales), calculate the commission by multiplying the net sales ($40,000) by the commission rate (5%). Use the formula: $ \text{Commission} = \text{Net Sales} \times \text{Commission Rate} $.

Step 4: For Method C ($1,000 salary plus 3% commission on net sales), calculate the commission by multiplying the net sales ($40,000) by the commission rate (3%), then add the fixed salary ($1,000). Use the formula: $ \text{Earnings} = \text{Fixed Salary} + (\text{Net Sales} \times \text{Commission Rate}) $.

Step 5: For Method D ($2,000 salary plus 2% commission on net sales), calculate the commission by multiplying the net sales ($40,000) by the commission rate (2%), then add the fixed salary ($2,000). Use the formula: $ \text{Earnings} = \text{Fixed Salary} + (\text{Net Sales} \times \text{Commission Rate}) $. Compare the earnings from all methods to determine which one results in the highest earnings.