EXERCISE 6-17 (30 MINUTES)

3. To determine the volume of sales at which net income would be equal

under either the 20% commission plan or the company sales force plan,

we find the volume of sales where costs before income taxes under the

two plans are equal.

X = Total sales revenue

0.65X + $4,800,000 = 0.525X + $7,125,000

0.125X = $2,325,000

X = $2,325,000 ÷ 0.125

Case 6-33 (continued)

Thus, at a sales level of $18,600,000 either plan would yield the same

income before taxes and net income. Below this sales level, the commis-

sion plan would yield the largest net income; above this sales level, the

sales force plan would yield the largest net income.