Question

When a company structures its sales commissions, it should always base them on sales dollars alone, without considering the relative contribution margin of various products sold.

true or false

Answer 1

FALSE

Reason: As the name suggest, sales commission is an allowance paid based on sales only to such person who puts efforts in increasing sales. Management always pays sales commission more to a person make more sales and less to a person make less sales. So here we can see that sales commission is always drives by the sales amount or no. of units sold. hence sales commission is a variable cost because it changes with the level of sales activity and to determine the contribution margin all of the variable cost should be deducted. So without considering the relative contribution margin of various products sold, one cannot determine the appropriate sales commission amount.