Salespersons’ incentives, customer profitability In response to how the sales incentives might be contributing to falling profits despite growing sales, Chan Company’s controller has produced the following information on last year’s sales to two customers that purchased a variety of products from the company:
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CUSTOMERS |
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CARLSON |
DONNER |
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Sales |
$450,000 |
$400,000 |
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Cost of goods sold |
180,000 |
80,000 |
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MSDA expenses, excluding sales commissions |
320,000 |
65,000 |
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Required
(a) Which customer is more profitable for the company?
(b) Compare a sales incentive scheme that pays 2% of sales revenue to an incentive scheme that pays 4% of customer profit. How will each scheme affect salespersons’ desire to increase sales to each customer?