Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Seco Corp., a wholesale supply company, uses independent sales agents to market the company's products. These agents currently receive a commission of 20% of sales,
Seco Corp., a wholesale supply company, uses independent sales agents to market the company's products. These agents currently receive a commission of 20% of sales, but are demanding an increase to 25% of sales. Seco had already prepared its budget for next year before learning of the sales agents' demand for an increase in commissions. That budgeted income statement appears below: SECO CORP Budgeted Income Statement Sales $10,000,000 Cost of sales 6,000,000 Gross margin 4,000,000 Selling and administrative expenses: Commissions $2,000,000 All other expenses (fixed) 100,000 2,100,000 Operating income $1,900,000 Seco is considering the possibility of employing its own salespersons. Three individuals would be required, at a salary of $30,000 each, plus commissions of 5% of sales. In addition, a sales manager would be employed at a fixed annual salary of $160,000. Required: A. Compute Seco's break-even point in sales dollars based upon the company's budgeted income statement, assuming that the company continues to use independent sales agents and that they are paid the old commission rate of 20% of sales. B. Compute Seco's break-even point in sales dollars, assuming that the company employs its own salespersons. C. Compute the sales dollars required to attain the target profit of $1,900,000, assuming that the company continues to use independent sales agents and the company agrees to their demand for a 25% sales commission. D. Compute the sales dollars that would be required to generate the same operating income, whether Seco employs its own salespersons or continues to use the independent sales agents and pays them a 25% commission
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started