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acc The sales agents are currently paid a 17TS commission on sales, and this commission rate was used when Hanson's management prepared the following budgeted
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The sales agents are currently paid a 17TS commission on sales, and this commission rate was used when Hanson's management prepared the following budgeted income statement for the upcomingyear. Since the completion of the above statement, Discovery's management has learned that the independent sales agents are demanding an increase in the commission rate to 21% of sales for the upcoming year. This would be the third increase in commissions demanded by the independent sales agents in five years. As a result, Discovery's management has decided to investigate the possibility of hiring its own sales staff to replace the independent sales agents. Discovery's controller estimates that the company will have to hire 7 salespeople to cover the current market area, and the total annual payroll cost of these employees will be about $790,000, including benefits. The salespeople will also be paid commissions of 12% of sales. Travel and entertainment expenses are expected to total about $270,000 for the year. The company will also have to hire a sales manager and support stalf whose salaries and benefits will come to $150,000 per year. To make up for the promotions that the independent sales agents had been running on behalf of Discovery, management believes that the company's budget for fixed advertising expenses should be increased by 5420,000. Required: 1. Assumingsales of $17,500,000 construct a budgeted contribution format income statement for the upcoming year for each of the following alternatives: a. The independent sales agents' commission rate remains unchanged at 17%. b. The independent sales agents' commission rate increases to 21%. c. The company employs its own sales force. 2. Calculate Discovery's break-even point in sales dollars for the upcomingyear assuming the following: a. The independent sales agents' commission rate remains unchanged at 17%. b. The independent sales agents' commission rate increases to 21% c. The company employs its own sales force Step by Step Solution
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