Last year, X Corporation had sales of $500,000 and total expenses of $300,000. A manager is entitled to a sales commission of 10% of net profit. What amount of commission is recognized at year-end?

Rationale

$20,000 is the amount of commission recognized at year-end.

To calculate the commission entitled to the manager, we first determine the net profit by subtracting total expenses from sales. In this case, the net profit is $500,000 in sales minus $300,000 in expenses, resulting in $200,000. The commission of 10% on this net profit is then $20,000.

A ($10,000) YOUR ANSWER

This option incorrectly calculates the commission by assuming a lower net profit. A commission of $10,000 would imply a net profit of only $100,000, which is not the case here as the actual net profit is $200,000.

B ($20,000) CORRECT

This is the correct amount of commission recognized at year-end. The commission is calculated as 10% of the net profit of $200,000, yielding $20,000 as the correct figure.

C ($30,000) YOUR ANSWER

Choosing $30,000 as the commission reflects an incorrect percentage calculation or an erroneous assumption about the net profit. A commission of $30,000 would suggest a net profit of $300,000, which exceeds the actual net profit of $200,000.

D ($50,000) YOUR ANSWER

This option overestimates the commission significantly. A commission of $50,000 would imply a net profit of $500,000, which is not possible given the total expenses incurred by the corporation.

Conclusion

The commission recognized at year-end for the manager is accurately calculated as $20,000, derived from the net profit of $200,000 after accounting for sales and expenses. Misunderstanding the net profit can lead to incorrect commission figures, emphasizing the importance of accurate financial calculations in corporate settings.

Last year, X Corporation had sales of $500,000 and total expenses of $300,000. A manager is entitled to a sales commission of 10% of net profit. What amount of commission is recognized at year-end?

$20,000 is the amount of commission recognized at year-end.

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