Reference no: EM133040310
1. You own a small business selling computers. Each computer is sold for the same price: $425.00 each. Your sales team is paid on salary with the potential for commission on each sale. Your best salesperson, Lolita, is paid $550 per week plus a commission of 6% on all sales. Last week, Lolita sold 3 computers on Monday, 7 computers on Tuesday, 5 computers on Wednesday, 4 computers on Thursday, and 6 computers on Friday. Returns and allowances for the week were 3 computers.
a. Find Lolita's Gross Pay for the week. Show all calculations.
b. Calculate the employee's Medicare Tax (1.45%). Show calculations.
c. Assume the employee has not earned $130,000 this year. What is this week's FICA tax withholding (6.2%)? Show calculations.
d. Explain why withholdings such as the Medicare Tax and FICA tax are required by the Federal Government. Do you agree that this system is the best way to provide a base for retirement? Explain your answer.
2. Lolita asks that you consider moving her from salary plus commission to strictly salary. She claims she has proved herself by her sales, and she promises her sales will not decrease. Lolita is asking to be paid $1000 a week.
a. Why might Lolita want to switch from a commission-based rate to a full-time salary rate? Provide at least two reasons.
b. Would you agree to pay her a salary of $1000 a week or offer an alternative? Explain the benefits and the drawbacks of each alternative. Then, explain the reasoning for your choice.
3. Reflect on this question: Which method of pay time--rates or incentive rates--do you prefer and why? Explain with an example.