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.
Check 1 1 "I say it's just plain robbery retorted Karl "And I also say it's time we dumped those guys and got our own sales force. Can you get your people to work up some cost figures for us to look at?" "We've already worked them up," said Barbara, "Several companies we know about pay a 7.5% 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 $3,675.000 per year, but that would be more than offset by the $4,900.000 (20% * $24,500,000) that we would avoid on agents! commissions The breakdown of the $3,675.000 cost follows: Ook at Berences salaries sales manager Salesperson Travel and entertainment Martting Total $ 153,125 918,750 612.500 1.90.625 "Super" replied Kart. "And I noticed that the $3,675,000 equals what we're paying the agents under the old 15% commission rate" "*'s even better than that, explained Barbara. "We can actually save $112.700 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. sold Karl With the approval of the committee, we can move on the matter immediately Required: 1. Computer Pittman Company's break even point in dolar 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 not 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 (ot a 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. Book Prim Complete this question by entering your answers in the tabs below. erences Required: Required 2 Required Required 4 Computer Pittman Company's break-even point in dollar sales for next year assuming: (Round CM ratio to 3 decimal places and final answers to the nearest dolor amount.) Break-Even Point The agents commission tate remains unchanged at 15% D. The agents commission rate is increased to 20% 6. The company employs its own sales force Required 2 > References 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 bados (indoor) Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required) 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) Complete this question by entering your answers in the tabs below. rences 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. The agents commission rate remains unchanged at 15% b. The agentis commission rate is increased to 20% c. The company employs is own sales force. 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) 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) Required 2 Required 4 > 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. 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.
