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Sales $26,000 Cost of goods sold Variable $11,?00 Fixed 2 STD Hid]: Gross profit 511,430 Selling and administrative costs Commissions $ 4,630 Fixed advertising cost

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Sales $26,000 Cost of goods sold Variable $11,?00 Fixed 2 STD Hid]: Gross profit 511,430 Selling and administrative costs Commissions $ 4,630 Fixed advertising cost F50 Fixed administrative cost 1,850 ?,230 Income before interest and taxes 5 4,150 Fixed interest cost 650 Income before income taxes $ 3,500 Income taxes (30%] 1,!1511 Net income 5 2,450 Since the completion of the income statement, Marston has learned that its sales agents are requiring a 5% increase in their commission rate [to 23%) for the upcoming year. As a result, l'i-iarston's president has decided to investigate the possibility of hiring its own sales staff in place of the network of sales agents and has asked Tom Markowitz, Marston's controller, to gather information on the costs associated with this change. Tom estimates that hiarston must hire eight salespeople to cover the current market area, at an average annual payroll cost for each employee of $80,000, including fringe benets expense. Travel and .tertainment exp-5e is expected to total $600,000 for the year, and the annual cost of hiring a sales manager and sales secretary will be $150,000. In addition to their salaries, the eight salespeople will each earn commissions at the rate of 10% of sales. The president believes that Marston also should increase its advertising budget by $500,000 if the eight salespeople are hired. Required '1. Determine Marston Corporation's breakeven point in sales dollars for the fiscal year ending June 30, 2015, if the company hires its own sales force and increases its advertising costs. Prove this by constructing a contributionformat income statement. 2. E Ivtarston continues to sell through its network of sales agents but agrees to pay the higher {23%) commission rate, determine the estimated volume in sales dollars that would be required to generate the same net income before tax as projected in the budgeted income statement. . - -3. Bonus: What is the indifference point in sales for the firm to either accept the agents' demand or adopt the proposed change? Which plan is better for the firm? Why? (me. Adapte a)

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