Compute Pittman Company's break-even point in dollar sales for next year assuming:

d.

The agents' commission rate remains unchanged at 15%.

b.

The agents' commission rate is increased to 20%.

C.

The company employs its own sales force.

2.

Assume that Pitman Company decides to continue selling through agents and pays the 20%

commission rate. Determine the dollar sales that would be required to generate the same net

income as contained in the budgeted income statement for next year.

3.

Determine the dollar sales at which net income would be equal regardless of whether Pittman

Company sells through agents (at a 20% commission rate) or employs its own sales force.

Compute the degree of operating leverage that the company would expect to have at the end of

next year assuming:

a.

The agents' commission rate remains unchanged at 15%.

b.

The agents' commission rate is increased to 20%.

C.

The company employs its own sales force.

Use income before income taxes in your operating leverage computation.

5. Based on the data in (1) through (4) above, make a recommendation as to whether the com-

pany should continue to use sales agents (at a 20% commission rate) or employ its own sales

force. Give reasons for your answer.

prices without losing an unacceptable numbers of customers. The company has an extremely effective lean production system, so there are no beginning or ending work in process or finished goods inventories. Required: 1. What is the company's overall break-even point in dollar sales? 2 of the total fixed expenses of $400,000 $20,000 could be avoided if the Velcro product is dropped, $80,000 if the Metal product is dropped, and $60,000 if the Nylon product is dropped. The remaining fixed expenses of $240,000 consist of common fixed expenses such as administrative salaries and rent on the factory building that could be avoided only by going out of business entirely What is the break-even point in unit sales for each product? . If the company sells exactly the break-even quantity of cach product, what will be the overall profit of the company? Explain this result. a. CASE 2-33 Cost Structure; Break-Even and Target Profit Analysis L02-4, LO2-5, L02-6 Pittman Company is a small but growing manufacturer of telecommunications equipment. The company has no sales force of its own; rather, it relies completely on independent sales agents to market its products. These agents are paid a sales commission of 15% for all items sold. Ch2 112 Brownie, pred the company more years Percom Bancome Samen For Ended December $16.000.000 $7.200.000 2.340.000 9.540.000 6.460.000 doved Crossain Seling and expert Con to get Fredagenes $2.400.000 120.000 1.800.000 Netting income 4320.000 2.140.000 540.000 1.600.000 480,000 $1. 120.000 Income before comes income to Netico heroes TO CO As Bartars hunded the came to Karl VocciPittman's president, she commented handed the agents Scrate in completing these statements, but we've je that they refuse to handle our products year unless we increase the commission rate to "That's the laraw." Karl replied angrily. "Those agents have been demanding met mund this time they were loota. How can they possibly defend a 20% commissie "They claim that her paying for advertising travel and the other costs of promotion, the mething left over for proti replies Buchana say it's a plain obberytorid Kari. "And I abio say it's time we dumped those pagal pet oor own sales force. Can you pe your people to work up some cost figures for us to look "We've already worked them wpad Barbara. "Several companies we know about 755 common to their own salespeople along with a small salary. Of course, we would to handle all promotion costs, too. We figure our foed expenses would increase by 52.400.000 year, but that would be more than offset by the $3.200.000 204 X 516,000,000) that we will void on pots commissions The below of the 52.400.000 cost follow ya 83 - Sales manage Seperont andet Advertising $100,000 500,000 400.000 1.300.000 52.400.000 under the old 155.com site "Super" replied and noticed that the 52.400,000 equals what we're paying the "It's even better than that explained Bathura. We can actually are 575.000 a year that's what we do to check out the age reports. So our overall expenses hele these when she and how them to the executive Conte With the proval of the committee, we can on the more Cost-Volume Profit Relationships Required: c. 1. Compute Pittman Company's break-even point in dollar sales for next year assuming: The agents' commission rate remains unchanged at 15%. b. The agents' commission rate is increased to 20%. The company employs its own sales force. 2. Assume that Pittman Company decides to continue selling through agents and pays the 20% commission rate. Determine the dollar sales that would be required to generate the same net income as contained in the budgeted income statement for next year. 3. Determine the dollar sales at which net income would be equal regardless of whether Pittman Company sells through agents (at a 20% commission rate) or employs its own sales force. 4. Compute the degree of operating leverage that the company would expect to have at the end of next year assuming: The agents' commission rate remains unchanged at 15%. b. The agents' commission rate is increased to 20%. The company employs its own sales force. Use income before income taxes in your operating leverage computation 5. Based on the data in (1) through (4) above, make a recommendation as to whether the com- pany should continue to use sales agents (at a 20% commission rate) or employ its own sales force. Give reasons for your answer. (CMA, adapted) a. c