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Determine the estimated sales dollars that would generate the same amount of net profit for September 2015 for the option of either (1) continuing to
Determine the estimated sales dollars that would generate the same amount of net profit for September 2015 for the option of either (1) continuing to sell through agents and pay a commission of 20% of selling price or (2) employing its own sales force.
Deriksson manufactures telecommunications equipment. The company has always been production-oriented and sells its products through agents. Agents are paid a commission of 14% of the selling price. Deriksson's budgeted statement of financial performance for product A45637 is as follows Deriksson - Product A45637 Budgeted Statement of Financial Performance For the month ending September 30, 2015 Sales (sales volume: 100) Manufacturing costs $25,000 $7,500 3,325 _10,825 - Variable - Fixed overhead 14,175 Gross margin Selling and administrative expenses $3,500 4,100 - Commissions - Fixed administrative 7,600 Net Profit After the profit plan was completed, Deriksson's sales agents demanded that the commission be increased to 20% of the selling price. Mike Mars, the company's managing director thought that this demand was outrageous and he asked Janet Hillson, a manager with some prior marketing experience, to estimate the cost to Deriksson of employing its own sales force. Hillson's estimate of the additional monthly cost, exclusive of commission, is as follows: sales personnel would receive a commission of 10% of the selling price in addition to their salary Estimated Monthly Cost of Employing a Company Sales Force for Product A45637 Salaries Fixed marketing costs Total 1,900 425 $2,325Step by Step Solution
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