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Poppity Popl is a growing manufacturer that produces three types of popcorn makers: home (stovetop), office (free-standing unit with a smaller capacity than movie theater maker), and movie theater ffreestanding unit, largest popcorn capacity). 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. Matt Cornish, the company's controller, has just prepared the company's budgeted income staternent for next year as follows: Matt cornish, the company's controller, has just prepared the company's budgeted income statement for next year as follows: As Matt handed the statement to Mya Ferguson, the company's president, he commented, I went ahead and used the agents' current commission rate las shown in cell B5) in completing these statements. Howover, we've just leamed that they refuse to soll our products next year unless we increase the commission rate as shown below in cell 829 "That's the last straw, "Mya replied angrily. Those agents have been demanding more and more, and this time they've gone too far. How can they possibly defend that new rate?" "They daim after paying for advertising, travel, and the other costs of promotion, there's nothing left over for protit: replied Matt. "I say it's just plain robbery, "retorted Mya "And 1 also say it's time we dumped those glays and got our oun saies force. Can you get your people to work some cost figures for us to look at?" Welve alfeady worked them up," said Matt "Smeral companies we know pay a commission fsee industry standard in cell 934) supplemented by a small salary. Of course, we would have to handie al. promotion costs, too. We figure our fixad expenses would increase, but that would be more than offset. by the cormmission that we would avoid on agents commissions. The increase in fixed conts is detaifed below. ready 783F Sunny Increase in fixed costs if the company uses its own sales staff rather than agents: "Super" replied Mya: "And I noticed that the total increased in foxed costs (cell B41) is fairly comparable to how much we're paying the agents in commissions last year (as shown in the income statement in cell 18)" "it's even better than that," explained Matt. "We can actually save more each year because we're paying our auditors to chock out the agents' reports. So our overail administrative expenses would be less". "Pull all of these numbers together and we?ilshow them to the executive committee tomorrow," said Mya. "With the approval of the committee, we can move on the matter immediately." Question 1: Contribution Margin Income Statement Prepare a corttribution format income statement for each of the three scenarios: a. If the agenis commission rernains unchanged (reatake the income stalement provided]. b. If the agents commissaion fele is increased c. If the company enclous its own sales force Cuestin 2 Pleakeven Point a Margin of Saf ely Campustn the CM rutie and tireakeven point in =olew dallar = asauming Rurshon 2. Preskeven Poink Bargin of Sirety Compute the CM ratie and breskeven pount in sales sellars ansuming? 4 Lxplain mat each of the calculaticeis mean lincluding a covrenson botween almustiven . Thit Ruestien 3: Sales Dallar = Pecquired at Sales Agerts are Paid Now Pate coisenisaian rate. Determine the dcilar sales that would be required to ocnerate the same operaling incerne as containcd in the budgeted inceene atalement fas shewn in cell C511] Analysis. Assume the cerrecarv has forecosted a 15% increase in sales fot next yea, ls the tales deilars required Icell Ch2) achievable for the cerryary? Why or whry not? Tell mariagement what the irvdifference point means, in a way that they ean understand When wiuld the corngany prefer to use sales agents? When would they prefer to use their own tales force? Why is this the case? Be very clear in your responsel (4 marks) Cuestion 5: Assume the company in forecasting a 15% increase in sales neut yeen Based on all andysiz completed, makr a recormuendation as to whether the company ahoudd continue to une salee argent; fat the new commission rotel ar earitoy its owt ales force. Give. reaseris fir youk aroser and reenember you are speaking to norvaccountants. Name af leasif too fachors that imanygrrmeryl shauld take inte consideration when making this tiecision * This muat be explained in a way that thes can underitand. Texilveok arswer= or generic the following information to hes with yeur analisis: uderstand. (4 marks) Poppity Popl is a growing manufacturer that produces three types of popcorn makers: home (stovetop), office (free-standing unit with a smaller capacity than movie theater maker), and movie theater ffreestanding unit, largest popcorn capacity). 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. Matt Cornish, the company's controller, has just prepared the company's budgeted income staternent for next year as follows: Matt cornish, the company's controller, has just prepared the company's budgeted income statement for next year as follows: As Matt handed the statement to Mya Ferguson, the company's president, he commented, I went ahead and used the agents' current commission rate las shown in cell B5) in completing these statements. Howover, we've just leamed that they refuse to soll our products next year unless we increase the commission rate as shown below in cell 829 "That's the last straw, "Mya replied angrily. Those agents have been demanding more and more, and this time they've gone too far. How can they possibly defend that new rate?" "They daim after paying for advertising, travel, and the other costs of promotion, there's nothing left over for protit: replied Matt. "I say it's just plain robbery, "retorted Mya "And 1 also say it's time we dumped those glays and got our oun saies force. Can you get your people to work some cost figures for us to look at?" Welve alfeady worked them up," said Matt "Smeral companies we know pay a commission fsee industry standard in cell 934) supplemented by a small salary. Of course, we would have to handie al. promotion costs, too. We figure our fixad expenses would increase, but that would be more than offset. by the cormmission that we would avoid on agents commissions. The increase in fixed conts is detaifed below. ready 783F Sunny Increase in fixed costs if the company uses its own sales staff rather than agents: "Super" replied Mya: "And I noticed that the total increased in foxed costs (cell B41) is fairly comparable to how much we're paying the agents in commissions last year (as shown in the income statement in cell 18)" "it's even better than that," explained Matt. "We can actually save more each year because we're paying our auditors to chock out the agents' reports. So our overail administrative expenses would be less". "Pull all of these numbers together and we?ilshow them to the executive committee tomorrow," said Mya. "With the approval of the committee, we can move on the matter immediately." Question 1: Contribution Margin Income Statement Prepare a corttribution format income statement for each of the three scenarios: a. If the agenis commission rernains unchanged (reatake the income stalement provided]. b. If the agents commissaion fele is increased c. If the company enclous its own sales force Cuestin 2 Pleakeven Point a Margin of Saf ely Campustn the CM rutie and tireakeven point in =olew dallar = asauming Rurshon 2. Preskeven Poink Bargin of Sirety Compute the CM ratie and breskeven pount in sales sellars ansuming? 4 Lxplain mat each of the calculaticeis mean lincluding a covrenson botween almustiven . Thit Ruestien 3: Sales Dallar = Pecquired at Sales Agerts are Paid Now Pate coisenisaian rate. Determine the dcilar sales that would be required to ocnerate the same operaling incerne as containcd in the budgeted inceene atalement fas shewn in cell C511] Analysis. Assume the cerrecarv has forecosted a 15% increase in sales fot next yea, ls the tales deilars required Icell Ch2) achievable for the cerryary? Why or whry not? Tell mariagement what the irvdifference point means, in a way that they ean understand When wiuld the corngany prefer to use sales agents? When would they prefer to use their own tales force? Why is this the case? Be very clear in your responsel (4 marks) Cuestion 5: Assume the company in forecasting a 15% increase in sales neut yeen Based on all andysiz completed, makr a recormuendation as to whether the company ahoudd continue to une salee argent; fat the new commission rotel ar earitoy its owt ales force. Give. reaseris fir youk aroser and reenember you are speaking to norvaccountants. Name af leasif too fachors that imanygrrmeryl shauld take inte consideration when making this tiecision * This muat be explained in a way that thes can underitand. Texilveok arswer= or generic the following information to hes with yeur analisis: uderstand. (4 marks)
