Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Bobs Builder., a wholesale roofing supply company, uses independent sales agents to market its products. These agents currently receive a commission of 20% of sales

Bobs Builder., a wholesale roofing supply company, uses independent sales agents to market its products. These agents currently receive a commission of 20% of sales but are demanding an increase to 25% of sales. Bobs Builder had already prepared its budget for next year before learning of the sales agents' demand for an increase in commissions. See below for the budgeted income statement:

Bobs Builder

Budgeted income statement

Sales $10,000,000

Cost of sales 6,000,000

Gross margin 4,000,000

Selling and administrative expenses:

Commissions $2,000,000

All other expenses (fixed) 100,000 2,100,000

Operating income $1,900,000

Bobs Builder is considering the possibility of employing its own salespeople, rather than using independent agents. Three employees would be required, at a salary of $30,000 each plus commissions of 5% of sales. In addition, a sales manager would be employed at a fixed annual salary of $160,000.

The management team would like to know the sales value at which point it becomes irrelevant to the company's profit which option it uses.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Intermediate Accounting IFRS

Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield

4th Edition

1119607515, 978-1119607519

Students also viewed these Accounting questions