Printing Press (PP) is operating close to capacity. The sales department earns commissions of 8% on sales. Setup charges amount to $60 per item, plus variable costs of $1 per copy. When capacity is reached, PP can still meet the order, but incurs overtime charges and other variable overhead of 25 cents per copy. The production manager complains that the sales staff promise delivery within very tight deadlines in order to secure orders, which means that overtime and other variable overhead has to be paid. A recent rush order for 100 engraved wedding invitations was secured at the normal price of $200. Which is true?
A)The present arrangements maximize profits for PP
B)Sales staff would coordinate rush orders with production if the excess charges were to be charged against their sales commission
C)Sales will increase if sales commission arrangements are changed
D)Sales staff are not rewarded for maximizing sales at any cost
E)None of the above

Question

Quizplus · Accepted Answer

The production manager's complaint indicates that the sales staff are not coordinating rush orders with production, thereby incurring overtime and other variable overhead costs. If the excess charges for rush orders were to be charged against their sales commission, the sales staff would have an incentive to coordinate with production and reduce these costs, thereby increasing profits for PP. Therefore, implementing this change would be beneficial for maximizing profits. The other options do not necessarily follow logically from the information given in the scenario.

Printing Press (PP) Is Operating Close to Capacity