Question
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
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started