PROBLEM 1. Lake Champlain Sporting Goods Company, a wholesale supply company, engages independent sales agents to market the company's products throughout New York and Ontario. These agents currently receive a commission of 20 percent of sales, but they are demanding an increase to 25 percent of sales made during the year ending December 31, 2014. The controller already prepared the 2014 budget before learning of the agents' demand for an increase in commissions. The budgeted 2014 income statement is shown below. Assume that cost of goods sold is 100 percent variable cost. LAKE CHAMPLAIN SPORTING GOODS COMPANY Budgeted Income Statement For the Year Ended December 31, 2014 P 15,000,000 9,000,000 P6,000,000 Sales Cost of goods sold Gross margin Selling and administrative expenses: Commissions All other expenses (fixed) Income before taxes Income tax (30%) Net Income P 3,000,000 150,000 3,150,000 P 2,850,000 855.000 P 1.995.000 The company's management is considering the possibility of employing full-time sales personnel. Three individuals would be required, at an estimated annual salary of P45,000 each, plus commissions of 5 percent of sales. In addition, two sales managers would be employed at fixed annual salaries of P120,000 each. All other fixed costs, as well as the variable cost percentages, would remain the same as the estimates in the 2014 budgeted income statement. REQUIREMENTS: 1. Compute Lake Champlain Sporting Goods Company's break-even point in sales peso for next year assuming a. The agents' commission rate remains unchanged at 20%. b. The agents' commission rate is increased to 25%. C. The company employs its own sales force. 2. Assume that the company decides to continue selling through agents and pays the 20% commission rate. Determine the volume of sales that would be required to generate the same net income as contained in the budgeted income statement for next year. 3. Determine the volume of sales at which net income would be equal regardless of whether Lake Champlain sells through agents (at a 25% commission rate) or employs its own sales force. 4. Assume that the revenue as budgeted was achieved by the entity. Compute for the margin of safety under the assumption that: i. The agents' commission rate remains unchanged at 15%. ii. The agents' commission rate is increased to 20%- iii. The company employs its own sales force