Q.A firm is deciding how to pay a salesman who is expected to sell goods worth Rs 2,00,000 in a month. Compare his monthly earnings under three plans:

This compares the three remuneration methods numerically at expected sales of Rs 2,00,000, so we compute the salesman's earnings under each plan.

We work out the salesman's monthly earnings under each of the three plans at sales of Rs 2,00,000.

1. Straight salary of Rs 15,000 Under a straight salary the pay is fixed regardless of sales. Earnings = Rs 15,000.
2. Straight commission of 8% on sales Commission = 8% of Rs 2,00,000 = (8 / 100) x 2,00,000 = Rs 16,000. Earnings = Rs 16,000.
3. Salary of Rs 8,000 plus 4% commission on sales Commission = 4% of Rs 2,00,000 = (4 / 100) x 2,00,000 = Rs 8,000. Earnings = salary + commission = 8,000 + 8,000 = Rs 16,000. Comparison

The two plans can also be compared by asking at what sales they are equal to the straight salary. Plan (ii) equals Rs 15,000 when 8% of sales = 15,000, i.e. sales = 15,000 / 0.08 = Rs 1,87,500; above this sales figure t …

A common error is to add the commission to the fixed salary in plan (ii), which has no salary. Another is to apply the wrong commission rate in plan (iii) — it …