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DISCOVERY COMPANY Discovery Steel Company manufactures steel dnilling attachments for the oil & gas industry. The company operates multiple steel foundry operationa throughout North. America.

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DISCOVERY COMPANY Discovery Steel Company manufactures steel dnilling attachments for the oil \& gas industry. The company operates multiple steel foundry operationa throughout North. America. Since the industry is very competitive, Discovery emplon a large sales team that is essential to the growth of the eganiration. The sales agents are currently paid a 17% commission ob salek, and this commission rate was used when Hansor's management prepared the following budgeted income statement for the upcomingyeae, Since the completion of the above statement, Discovery's management has leamed that the independent sales agents are demanding an increase in the commission rate to 21% of sales for the upcomincyear. This would be the third increase in commissigns demanded by the indesendent sales agents in five years. As a result, Discoverv's management has decided to investigate the possibility of hiring its own sales staff to replace the independent sales agents. Discovery's controller estimates that the company will have to hire 7 saleipeople to cover the current market area, and the total annual payroll cost of these employees will be about 5790,000 , induding benefits. The salespeople will atwo be paid commisions of 12% of sales. Travel and entertainment expenses are expected to total about $270,000 for the year. The company will also have to hire a sales manager and support staff whose salaries and benefits will come to $150,000 per vear. To make up for the promotions that the independentsales agents had been running on behalf of Descovery, management believes that the companys budget for fixed advertising expenses should be increased by $420,000. ciokt: Pubic Required: 1. Assuming ales of $17,500,000 construct a budgeted contribution format income statement for the upcoming vear for each of the following alternatives: a. The independent sales agents' commission rate femains unchanged at 17x. b. The independent sales agents commission rate increases to 21%. c. The companyemploys its owh sales force. 2. Calculate 0iscovery's break even point in sales dollars for the upcoming year assuming the following: a. The independent sales agents' commiswion rate remains unchanged at 17X b. The independent sales agents commission rate increases to 21%. c. The company emplors its owo sales force. 3. Refor to your answer abeve. If the company employs its own sales fotce, what volume of sales would be necessary to generate the net operating income the company would realize if sales are $17,500,000 and the companycontinues to sell through agents fat a 21% commission rate|

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