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Power Trading Ltd is a wholesale supply company which engages external sales agents to market the company's products. These sales agents currently receive a commission of 20% on sales revenues, but they now demand an increase of commission rate to 25%. The management had already prepared its budget for next year before the sales agents requested the increase in commissions. The budgeted income statement of the company is shown below: $ $ Sales revenues 10,000,000 Cost of sales (variable) 6,000,000 Gross profit 4,000,000 Operating expenses: Sales commissions (variable) 2,000,000 Administrative (fixed) 300,000 2,300,000 Net profit 1,700,000 The management is considering the possibility of employing its own salespersons. They planned to employ three sales executives at a fixed annual salary of $50,000 each, plus commissions of 5% on sales revenues. In addition, a sales manager would be employed at a fixed annual salary of $250,000. Question 5 Required: (a) Based on the company's budgeted income statement and assuming that the company continues to engage external sales agents who are paid the current commission rate of 20% of sales, calculate the break-even point in sales dollars. (5 marks) (b) Determine the new break-even point in sales dollars assuming: (i) the commission paid to external sales agents is increased to 25% of sales, and (ii) the II Proctorio is sharing your screen. Stop sharing Hide Power Trading Ltd is a wholesale supply company which engages external sales agents to market the company's products. These sales agents currently receive a commission of 20% on sales revenues, but they now demand an increase of commission rate to 25%. The management had already prepared its budget for next year before the sales agents requested the increase in commissions. The budgeted income statement of the company is shown below: $ $ Sales revenues 10,000,000 Cost of sales (variable) 6,000,000 Gross profit 4,000,000 Operating expenses: Sales commissions (variable) 2,000,000 Administrative (fixed) 300,000 2,300,000 Net profit 1,700,000 The management is considering the possibility of employing its own salespersons. They planned to employ three sales executives at a fixed annual salary of $50,000 each, plus commissions of 5% on sales revenues. In addition, a sales manager would be employed at a fixed annual salary of $250,000. Question 5 Required: (a) Based on the company's budgeted income statement and assuming that the company continues to engage external sales agents who are paid the current commission rate of 20% of sales, calculate the break-even point in sales dollars. (5 marks) (b) Determine the new break-even point in sales dollars assuming: (i) the commission paid to external sales agents is increased to 25% of sales, and (ii) the II Proctorio is sharing your screen. Stop sharing Hide
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Answer rating: 100% (QA)
Answer a To calculate the breakeven point in sales dollars we need to find the level of sales at which the companys net profit is zero From the budget... View the full answer
Related Book For
Managerial Accounting Creating Value in a Dynamic Business Environment
ISBN: 978-0078025662
10th edition
Authors: Ronald Hilton, David Platt
Posted Date:
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