Here are the following questions I am having a very difficult time with. Please help!
' A. - n 8 ezto.mheducationmm,iiim.:px?_=o.707565403633?636_1503469765929Case Study Pittman Company :3 -;_ . Pittman Company is a small but growing manutantureroftielenmmunioations equipment. The company has no sales tome of its own; rather, it relies completely on independent sales agents to market its products. These agents are paid a sales commission ot 15% forall items sold. Barbara Cheney, Pittman's controller, has just prepared the com pany's budgeted income statement tor next year. The statement follows: mm Comm Budgeted lneorne Statement For the Year Ended Daeelllber 31 Sales $ 10,700,000 Manufactun'ng expenses: Variable $ 7,650,000 Fixed overhead 2,700,000 10,350,000 Gross margin 3,350.00! Selling and administrative expenses: Cmmissions to agent; 2,805,000 Fixed marketing expenses 210,001)" Fixed administrative expenses 2,250,000 5,265,000 Net operating income $ 3,005,000 Fixed interest expemee 630,000 Income before inoome taxes 2,455,000 Income taxes {25%) 613,750 Net inmme 1 41,250 r."- 'Primarily depredation on storage facilities As Barbara handed the statementto Kan Veooi, Pittman's pmiderit, she oommented, 'I went ahead and used the agents' 15% oommission late in completing these statements, birtwe've just leamed that they refuse to handle our products next year unless we increase the oommism'on rate to 20%.\" "That's the last straw,\" Karl replied angrily. "Thosa agents have been demanding more and more, and this time they've gone too far. How can they powibly detend a 20% oommiaiion rele'?'I "Ii-lay claim that atter paying for advertising, travel, and the other costs ofpromotion, there's nothing lett over for profit,\" replied Barbara. "I say it's just plain robbery," retorted Kan. "And I also say it's time we dumped those guys and got our own sales force. Can you geter people to work up some cost gures for us to look at?\" "We've already worked them up,\" said Barbara. "Several oompanieswe know aboutpay 0.4% commission to their own salespeople, along with a small salary. Ofoourse, we would have to handle ail promotion rsts, too. We gure our xed expenses would increase by $2,305,000 per year, but that would be more than o'set by the $3,740,000 (20% K $18,700,[KI|) that we would avoid an agents' oommissions.' The breakdown of the $2,005,000 cost foilows: A u, b}; ' ' _ 8 ezto.mheducatlanxom!hm.rpx?_=0.?07565403633?686_l508469765929Case Study Pittman Company 6 _'._ we. . Salaries: Bales manager 3 190,0'0 Salesperaom: 1,050,000 Travel and er'arldnmant 760,000 Adverlislng 805,000 Total $2,005,000 REE "Super,' replied Karl. 'And I natimd am Ihe $2,005,000 is just what we're paying the agents under Ihe old 15% aemmissiun rale.' 'lt'e even halter lhan thal,' eatpielned Barbara. \"We can actually save $120,000 a year because that's what we're having he pay the auditing rm new In mam out the agenteI reparle. So our overall administrative well; would be Ieaa.' "Pull all of these numbers lngelher and we'll show them In the exemliva oemmiliae Inmrruw," said Karl. \"With the appmval aftha committee, wet-an move an the matter immediately.\" Required: 1. Compute Pittman Company's break-even paint in du1lar sales for next year agiauming: (Em your answer In whole dollars and not in lhousandl. Round CM ratio to 3 decimal places and final answer he the nearest dollar amount.) a. The agents' commission rate remains unchanged at 15%. b. The agenls' oommiasion rate is increased in 2035' c. The company employs i'ls awn sales fame. I all, ' '9; ' _ e ezto.mheducatianxom!i1m.tpx?_=0.?07565403633?686_l508469765929Case Study Pittman Company 6 _'._ we. 2. Assume that Pittman Company decides to continue selling through agents and pays the 20% commission rate. Determine the volume of sales that would be required In generate the same net income es eeniained in the budgeted inmme statement for next year. [Enter your answer In whale dollars and not in thousands. Round CM ratio to 3 decimal places.) 3. Determine the volume otsalm atwhioh neiinmme would be equal regardless otwhe1her Pusan Company sells through agents {at e 20% mminion rate] or employ: its own sales tom. [Enhr your answer in whole dollars end not In thousands. Round CM ratio to 3 decimal places.] 4. Compute the degree ofaperating leverage that the company would expect to have on December 31 at the end of next year assuming: a. The agents' commission rate remains unchanged at 15%. (Round your answerte 2 decimal Planet} 1). The agents' commission rate is increased to 20%. (Round your answer to 2 decimal places.) e ezto.mheducation.com.ihm.tpx? 0.?075654036337686J508469765929 Case Study Pittman Company b. The agents' commission rate is increased in 20%. {Round your enmr ta 2 decimal planet} c. The company employs its own sales force. [Round your anew-r to Zdeeimll places.) References eBook & Resources Worksheet Di'mity: 3 Hard Learning Objective: 05-05 Detem'iine the break-even poinL Case 5-33 Coet Stun-Aura; Learning Objective: 05-04 Show the Learning Obpective: 05-06 Detem'iine the level of 33595 needed to achieve a Break-Even and Target Prot effects on net operating income of desired target prot. Analysis [LOS-A, L055. L05- changes in variabte costs, xed costs, 6] selling price. and miume
