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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.

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