nts eBook Print ferences Case 5-32 (Algo) Cost Structure; Break-Even and Target Profit Analysis [LO5-4, LO5-5,...

Transcribed Image Text:

nts eBook Print ferences Case 5-32 (Algo) Cost Structure; Break-Even and Target Profit Analysis [LO5-4, LO5-5, LO5-6] Pittman Company is a small but growing manufacturer of telecommunications equipment. The company has no sales force of its own; 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. Barbara Cheney, Pittman's controller, has just prepared the company's budgeted income statement for next year as follows: Sales Pittman Company Budgeted Income Statement For the Year Ended December 31 Manufacturing expenses: Variable Fixed overhead Gross margin Selling and administrative expenses: Commissions to agents Fixed marketing expenses Fixed administrative expenses Net operating income Fixed interest expenses Income before income taxes Income taxes (30%) Net income "Primarily depreciation on storage facilities. $21,500,000 $9,675,000 3,010,000 12,685,000 8,815,000 3,225,000 150,500+ 2,020,000 5,395,500 3,419,500 752,500 2,667,000 800,100 $ 1,866,900 As Barbara handed the statement to Karl Vecci, Pittman's president, she commented, "I went ahead and used the agents' 15% commission rate 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%." nts eBook Print ferences Case 5-32 (Algo) Cost Structure; Break-Even and Target Profit Analysis [LO5-4, LO5-5, LO5-6] Pittman Company is a small but growing manufacturer of telecommunications equipment. The company has no sales force of its own; 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. Barbara Cheney, Pittman's controller, has just prepared the company's budgeted income statement for next year as follows: Sales Pittman Company Budgeted Income Statement For the Year Ended December 31 Manufacturing expenses: Variable Fixed overhead Gross margin Selling and administrative expenses: Commissions to agents Fixed marketing expenses Fixed administrative expenses Net operating income Fixed interest expenses Income before income taxes Income taxes (30%) Net income "Primarily depreciation on storage facilities. $21,500,000 $9,675,000 3,010,000 12,685,000 8,815,000 3,225,000 150,500+ 2,020,000 5,395,500 3,419,500 752,500 2,667,000 800,100 $ 1,866,900 As Barbara handed the statement to Karl Vecci, Pittman's president, she commented, "I went ahead and used the agents' 15% commission rate 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%."