Buckley Corporation manufactures disposable thermometers that are sold to hospitals through a network of independent sales agents located in the USA and Canada. These sales agents sell a variety of other products to hospitals in addition to Buckley's disposable thermometers. The sales agents are currently paid a sales commission of 18%. This rate was used when Buckley's management prepared the following traditional GAAP income statement for the upcoming year. Buckley Corporation Budgeted Income Statement $30,000,000 $20,200,000 $ 9,800,000 Sales (20,000,000 units) Cost of Goods Sold: Variable $17,400,000 Fixed $ 2,800,000 Total Cost of Goods Sold Gross Profit Selling, General & Admin Expenses: Sales Commissions $ 5,400,000 Fixed Advertising Expenses $ 800,000 Fixed SGA Expenses $ 3,200,000 Total SGA Expenses Earnings Before Interest & Taxes 9,400,000 $ 400,000 Since the completion of the above budgeted income statement, Buckley's management has learned that the independent sales agents are demanding an increase in the sales commission rate to 20% for this upcoming year. This would be the third increase in commissions demanded by the independent sales agents in five years. Buckley's executive management is irate and has decided to investigate the possibility of hiring its own internal sales force to replace the outside independent sales agents. Your business analysis group has been tasked with conducting the analysis and to make a final recommendation to executive management. Buckley's CFO and CMO estimate that the company will have to hire 8 salespeople to cover the current market area, and the total annual salary cost of these employees will be about $700,000, including salary and benefits. The salespeople will also be paid a sales commission of 10% in addition to their salaries. Travel and entertainment expenses are expected to be about $400,000 for the year. Buckley will also have to hire a sales manager and support staff whose salaries and benefits will come to $200,000 per year. To make up for the promotions that the independent sales agents had been running at their expense and on behalf of Buckley, management believes that the company's budget for fixed advertising expenses, will be increased by $500,000. Required: For Parts 1-3, use the contribution margin format we discussed in class to do the following for each of Parts 1, 2, and 3: a. Prepare the contribution format income statement to calculate the EBIT b. Contribution Margin per Unit (CMU) Contribution Margin Ratio (CMR) c. Part 1. Original 18% Sales Commission used in the above budget Part 2. New 20% Sales Commission that will now have to be paid Part 3. New Internal Sales Force For Parts 4-6, calculate the following items for each part: a. Calculate the Breakeven point in units (BEPU) b. Calculate the Breakeven point in sales Dollars (BEP$) Part 4. Original 18% Sales Commission used in the above budget Part 5. New 20% Sales Commission that will now have to be paid Part 6. New Internal Sales Force Part 7. Return to Part 6 and prepare a contribution format income statement that shows EBIT of $0 to prove your BEP calculated in Part 6 is indeed correct. Part 8. Explain: a. Which plan (New 20% Commission or New Internal Sales Force) you would select from a quantitative analysis? b. What qualitative factors would you recommend that management consider before making a final decision? For Parts 1-3, use the contribution margin format we discussed in class to do the following for each of Parts 1, 2, and 3: a. Prepare the contribution format income statement to calculate the EBIT b. Contribution Margin per Unit (CMU) Contribution Margin Ratio (CMR) c. Part 1. Original 18% Sales Commission used in the above budget Part 2. New 20% Sales Commission that will now have to be paid Part 3. New Internal Sales Force For Parts 4-6, calculate the following items for each part: a. Calculate the Breakeven point in units (BEPU) b. Calculate the Breakeven point in sales Dollars (BEP$) Part 4. Original 18% Sales Commission used in the above budget Part 5. New 20% Sales Commission that will now have to be paid Part 6. New Internal Sales Force Part 7. Return to Part 6 and prepare a contribution format income statement that shows EBIT of $0 to prove your BEP calculated in Part 6 is indeed correct. Part 8. Explain: a. Which plan (New 20% Commission or New Internal Sales Force) you would select from a quantitative analysis? b. What qualitative factors would you recommend that management consider before making a final decision? naking a final decision? Extra Credit: At what sales level in dollars will both the new 20% commission program and the new internal sales force have the same EBIT? Calculate that number and then prove it by preparing side-by-side contribution format income statements that show the same EBIT