HEMULUI MICI Exam U 1 Case 5-32 (Algo) Cost Structure; Break-Even and Target Profit Analysis (L05-4, LO5-5, LO5-6] Pittman Company is a small but growing manufacturer of telecommunications equipment. The company has no sales force of its own father, it relies completely on independent sales agents to market its products. These agents are paid osales commission of 15% for all items sold Barbara Cheney. Pitman's controller, has just prepared the company's budgeted income statement for next year as follows fudgeted Income Statet For the Year Ended December 11 525,000,000 511,250,000 1.500.000 Manufacturing Variable Grosse Selling and instrative expenses Csions penses 1,750,000 10,000 3.750,00 195,000 rating In Interest was Income for inte In the chos) 5.005.000 45,000 325 000 5.290,000 982.000 12.303,000 Primary depreciation on storage facilities As Barbara handed the statement to Kart Veco, Pittman's president she commented went ahead and used the agents 15% Commissione in completing these statements but we've just learned that they refuse to handle our products next year unless we increase the commission rate to 20% That's the tastrow Karrolled angry "Those agents have been demanding more and more and this time they ve gone too far How can they possibly detendo 20% commissionate They claim that after paying for advertising travel and the other costs of promotion there's nothing left over for protitele is just loobbery retoned Karl And Say It's time we dumped those guys and got our own salesforce. Can you get foto medication.com/extmag/index.html contexternal browser launch newconned medication.com/addon 1 Managerial Accountang - Midterm Exam commission rate in completing these statements, but we ve just camed that they refuse to undo our products next year unless we micrease the commission rate 10 20% "That's the last straw. Kart replied angrily Those agents have been demanding more and mone, and this time they ve gone to for How can they possibly defend a 20% commission rate?" "They claim that after paying for advertising, travel and the other costs of promotion, there's nothing with over for profit, replied Barbara pourts say it's just plain robbery retorted Kart "And I ako say it's time we dumped those guys and got our own salesforce. Can you get your people to work up some cost ligures for us to look at We ve already worked them up.sk Barbara Several companies we know about pay a 75% commission to their own salespeople, along with a small salary Of course, we would have to handle all promotion costs, too. We figure our fixed expenses would increase by $3,750,000 per year but that would be more than offset by the $5.000.000 (20%. $25.000.000 that we would avoid on agents Comuni 10 The breakdown of the $3,750,000 cost follows Salaries Sales Manager Travel and entertainment Advertising Total $ 195,250 937.500 69,00 3950 33,750,000 Supec replied Karl. "And I noticed that the $3,750,000 equals what we're paying the agents under the old 15 commission rate it's even better than that explained Barbara. "We can actually save $175,000 a year because that's what we're paying our auditors to check out the agents reports. So our overall administrative expenses would be less "Pull all of these numbers together and we'll show them to the executive committee tomorrow." said Kort with the approval of the committee we can move on the matter immediately Required: 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 10 20 ME G to medication.com/ext/map/index.html conco&temal browset=&chitab252F%252Fhewconnect.mheducation.com%252F/ad 1 Managerial Accounting Midterm Exam "Pull all of these numbers together and we'll show them to the executive committee tomorrow. Said Karl With the approval of the committee, we can move on the matter immediately Required: 1 Compute Pittman Company's break even point in dollar sales for 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 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 Heferences 20% commission rate) or employs its own salesforce. 4 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 10 points Complete this question by entering your answers in the tabs below. Required: Required 2 Required Requred 4 Comput Pittman Company's break even point in dollar sales for next year assuming (Round CM ratio to 3 decimal places and finalmers to the nearest dollar amount.) Break-Even Point The mission rate remains unchanged at 15% The agents commosiones este 2015 The company employs how to Required 2 > MG Saw 1111 Next > 3. Determine the dollar sales at which net income would be equal regardless of whether Pittman Company sells through ag 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 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. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 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. (Round CM ratio to 3 decimal places and final answer to the nearest dollar amount.) Volume of sales (in dollars) Prry 1 of 3 Next neer 2. Assume that Pittman Company decides to continue selling through agents and pays the 20% commission rate Determine the do 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 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 a. 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 Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 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. (Do not round intermediate calculations.) Volume of sales (in dollars) Dreu HER in agents com D. The agents commission rate is increased to 20% c. The company employs its own soles force 50 Dots References 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 rato) 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 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 Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Compute the degree of operating leverage that the company would expect to have at the end of next year assuming: (Use income before income taxes in your operating leverage computation.) (Round your answers to 2 decimal places.) Degree of Operating Leverage a b The agents commission rate remains unchanged at 15% The agents commission rate is increased to 20% The company employs its own sales force