Question
Please check input on journal entries and help solve sections 2, 3, and 4... Marston Corporation manufactures disposable thermometers that are sold to hospitals through
Please check input on journal entries and help solve sections 2, 3, and 4...
Marston Corporation manufactures disposable thermometers that are sold to hospitals through a network of independent sales agents located in the United States and Canada. These sales agents sell a variety of products to hospitals in addition to Marston's disposable thermometer. The sales agents are currently paid an 20% commission on sales, and this commission rate was used when Marston's management prepared the following budgeted absorption income statement for the upcoming year. |
Marston Corporation Budgeted Income Statement | |||||||||||
Sales | $ | 30,000,000 | |||||||||
Cost of goods sold: | |||||||||||
Variable | $ | 17,100,000 | |||||||||
Fixed | 2,750,000 | 19,850,000 | |||||||||
Gross margin | 10,150,000 | ||||||||||
Selling and administrative expenses: | |||||||||||
Commissions | 6,000,000 | ||||||||||
Fixed advertising expense | 750,000 | ||||||||||
Fixed administrative expense | 3,200,000 | 9,950,000 | |||||||||
Net operating income | $ | 200,000 | |||||||||
Since the completion of the above statement, Marstons management has learned that the independent sales agents are demanding an increase in the commission rate to 22% of sales for the upcoming year. This would be the third increase in commissions demanded by the independent sales agents in five years. As a result, Marstons management has decided to investigate the possibility of hiring its own sales staff to replace the independent sales agents. |
Marston's controller estimates that the company will have to hire eight salespeople to cover the current market area, and the total annual payroll cost of these employees will be about $670,000, including fringe benefits. The salespeople will also be paid commissions of 10% of sales. Travel and entertainment expenses are expected to total about $390,000 for the year. The company will also have to hire a sales manager and support staff whose salaries and fringe benefits will come to $180,000 per year. To make up for the promotions that the independent sales agents had been running on behalf of Marston, management believes that the companys budget for fixed advertising expenses should be increased by $450,000. |
Required: | |
1. | Assuming sales of $30,000,000, construct a budgeted contribution format income statement for the upcoming year for each of the following alternatives: |
a. | The independent sales agents' commission rate remains unchanged at 20%. (Input all amounts as positive values except losses which should be indicated by a minus sign. Leave no cells blank - be certain to enter "0" wherever required. Enter your answers in thousands. Round your percentage answers to the nearest whole percent.) |
(Click to select)SalesNet operating income (loss)Fixed administrative expenseFixed cost of goods soldContribution marginFixed advertising expenseVariable cost of goods soldCommissionsFixed marketing staff expense | $ | % | |||
Variable expenses: | |||||
(Click to select)CommissionsFixed cost of goods soldNet operating income (loss)Fixed marketing staff expenseFixed advertising expenseVariable cost of goods soldSalesContribution marginFixed administrative expense | $ | ||||
(Click to select)Variable cost of goods soldSalesFixed administrative expenseCommissionsFixed marketing staff expenseNet operating income (loss)Fixed advertising expenseContribution marginFixed cost of goods sold | |||||
Total variable expense | % | ||||
(Click to select)Net operating income (loss)Variable cost of goods soldCommissionsFixed administrative expensesFixed cost of goods soldFixed marketing staff expenseFixed advertising expenseSalesContribution margin | % | ||||
Fixed expenses: | |||||
(Click to select)Fixed administrative expenseContribution marginNet operating income (loss)Fixed marketing staff expenseSalesFixed cost of goods soldCommissionsVariable cost of goods soldFixed advertising expense | |||||
(Click to select)Net operating income (loss)SalesContribution marginFixed marketing staff expenseVariable cost of goods soldFixed advertising expenseFixed administrative expenseFixed cost of goods soldCommissions | |||||
(Click to select)Fixed advertising expenseVariable cost of goods soldFixed marketing staff expenseFixed administrative expenseContribution marginNet operating income (loss)Fixed cost of goods soldSalesCommissions | |||||
(Click to select)SalesNet operating income (loss)Contribution marginFixed administrative expenseFixed marketing staff expenseCommissionsFixed advertising expenseFixed cost of goods soldVariable cost of goods sold | |||||
Total fixed expenses | |||||
(Click to select)Fixed cost of goods soldCommissionsContribution marginFixed marketing staff expenseSalesVariable cost of goods soldFixed administrative expensesNet operating income (loss)Fixed advertising expense | $ | ||||
b. | The independent sales agents' commission rate increases to 22%. (Input all amounts as positive values except losses which should be indicated by a minus sign. Leave no cells blank - be certain to enter "0" wherever required. Enter your answers in thousands. Round your percentage answers to the nearest whole percent.) |
(Click to select)Contribution marginFixed marketing staff expenseSalesVariable cost of goods soldFixed cost of goods soldNet operating income (loss)Fixed advertising expenseFixed administrative expenseCommissions | $ | % | |||
Variable expenses: | |||||
(Click to select)SalesFixed administrative expenseFixed advertising expenseFixed marketing staff expenseVariable cost of goods soldFixed cost of goods soldNet operating income (loss)Contribution marginCommissions | $ | ||||
(Click to select)Net operating income (loss)Fixed advertising expenseFixed cost of goods soldCommissionsSalesVariable cost of goods soldContribution marginFixed administrative expenseFixed marketing staff expense | |||||
Total variable expense | % | ||||
(Click to select)Variable cost of goods soldFixed marketing staff expenseContribution marginNet operating income (loss)CommissionsFixed cost of goods soldFixed advertising expenseSalesFixed administrative expenses | % | ||||
Fixed expenses: | |||||
(Click to select)SalesVariable cost of goods soldNet operating income (loss)Fixed marketing staff expenseFixed administrative expenseContribution marginFixed advertising expenseFixed cost of goods soldCommissions | |||||
(Click to select)Fixed cost of goods soldFixed advertising expenseCommissionsFixed administrative expenseNet operating income (loss)SalesFixed marketing staff expenseContribution marginVariable cost of goods sold | |||||
(Click to select)Fixed advertising expenseSalesFixed marketing staff expenseNet operating income (loss)Fixed administrative expenseContribution marginCommissionsFixed cost of goods soldVariable cost of goods sold | |||||
(Click to select)Fixed marketing staff expenseFixed cost of goods soldVariable cost of goods soldFixed advertising expenseFixed administrative expenseContribution marginNet operating income (loss)CommissionsSales | |||||
Total fixed expenses | |||||
(Click to select)SalesContribution marginCommissionsFixed cost of goods soldFixed marketing staff expenseVariable cost of goods soldFixed administrative expensesNet operating income (loss)Fixed advertising expense | $ | ||||
c. | The company employs its own sales force. (Input all amounts as positive values except losses which should be indicated by a minus sign. Leave no cells blank - be certain to enter "0" wherever required. Enter your answers in thousands. Round your percentage answers to the nearest whole percent.) |
(Click to select)Fixed advertising expenseFixed cost of goods soldVariable cost of goods soldSalesNet operating income (loss)CommissionsFixed administrative expenseContribution marginFixed marketing staff expense | $ | % | |||
Variable expenses: | |||||
(Click to select)Contribution marginVariable cost of goods soldFixed marketing staff expenseFixed advertising expenseSalesNet operating income (loss)CommissionsFixed cost of goods soldFixed administrative expense | $ | ||||
(Click to select)CommissionsContribution marginFixed advertising expenseVariable cost of goods soldNet operating income (loss)Fixed cost of goods soldFixed marketing staff expenseSalesFixed administrative expense | |||||
Total variable expense | % | ||||
(Click to select)Fixed marketing staff expenseFixed cost of goods soldFixed administrative expensesContribution marginFixed advertising expenseVariable cost of goods soldNet operating income (loss)CommissionsSales | % | ||||
Fixed expenses: | |||||
(Click to select)Fixed cost of goods soldFixed advertising expenseNet operating income (loss)Contribution marginFixed marketing staff expenseCommissionsVariable cost of goods soldSalesFixed administrative expense | |||||
(Click to select)Fixed advertising expenseSalesFixed administrative expenseCommissionsNet operating income (loss)Variable cost of goods soldFixed cost of goods soldFixed marketing staff expenseContribution margin | |||||
(Click to select)Fixed administrative expenseNet operating income (loss)SalesFixed cost of goods soldFixed marketing staff expenseFixed advertising expenseVariable cost of goods soldCommissionsContribution margin | |||||
(Click to select)CommissionsFixed administrative expenseVariable cost of goods soldFixed marketing staff expenseSalesFixed cost of goods soldFixed advertising expenseContribution marginNet operating income (loss) | |||||
Total fixed expenses | |||||
(Click to select)Fixed administrative expensesFixed advertising expenseFixed cost of goods soldFixed marketing staff expenseVariable cost of goods soldNet operating income (loss)CommissionsSalesContribution margin | $ | ||||
2. | Calculate Marston Corporation's break-even point in sales dollars for the upcoming year assuming the following: |
a. | The independent sales agents' commission rate remains unchanged at 20%. (Round the CM ratio to 2 decimal places and final answer to the nearest dollar amount. Enter your answers in whole dollars and not in thousands.) |
Break-even point in sales dollars | $ |
b. | The independent sales agents' commission rate increases to 22%. (Round the CM ratio to 2 decimal places and final answer to the nearest dollar amount. Enter your answers in whole dollars and not in thousands.) |
Break-even point in sales dollars | $ |
c. | The company employs its own sales force. (Round the CM ratio to 2 decimal places and final answer to the nearest dollar amount. Enter your answers in whole dollars and not in thousands.) |
Break-even point in sales dollars | $ |
3. | Refer to your answer to (1)(b) above. If the company employs its own sales force, what volume of sales would be necessary to generate the net operating income the company would realize if sales are $30,000,000 and the company continues to sell through agents (at a 22% commission rate)? (Round the CM ratio to 2 decimal places and final answer to the nearest dollar amount. Enter your answers in whole dollars and not in thousands.) |
Volume of sales | $ |
4. | Determine the volume of sales at which net operating income would be equal regardless of whether Marston Corporation sells through agents (at a 22% commission rate) or employs its own sales force. (Round the CM ratio to 2 decimal places and final answer to the nearest dollar amount. Enter your answers in whole dollars and not in thousands.) |
Volume of sales | $ |
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