Question

Return to question - Pittman Company is a small but growing manufacturer of telecommunications equipment. 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 of 15% for all N items sold. Barbara Cheney, Pittman's controller, has just prepared the company's budgeted income statement for next year as follows: $ 25, eee, eee 14,750, eee 10,25e,eee Pittman Company Budgeted Income Statement For the Year Ended December 31 Sales Manufacturing expenses: Variable $11,250,000 Fixed overhead 3,500,000 Gross margin Selling and administrative expenses: Commissions to agents 3,750, eee Fixed marketing expenses 175, eee Fixed administrative expenses 2,16e, eee Net operating income Fixed interest expenses Income before income taxes Income taxes (30%) 6,885, eee 4,165,000 875, eee 3, 290, eee 987,200 < Prev 1 of 1 * Next search 7:29 PM 2/2/2020

can you please help me with required 2 and 4. thanks. the previous answer was wrong.

Answer 1

a.	Break-even point in dollar sales						16,775,000
	BEP(dollar sales) =		fixed expense/contribution margin ratio
			Fixed cost				6,710,000
			Contribution margin				40.0%
b)	Break even point in dollar sales						19,171,429
c)	Break even point in dollar sales						21,778,947
2)	Voulme of sales (in dollars)						28,571,429
	(Target income before taxes +fixed expense)/contribution margin
3)	Voulme of Sales (in dollars)						29,080,000
	X =	total evenue
	.65 X + 6,710,000=		.525x +10,345,000
		0.125	x	=		3,635,000
			x =	29080000
4)
a)	Degree of operating leverage						3.04
b)	Degree of operating leverage						4.29
c)	Degree of operating leverage						7.76
	degree of operating leverage = contribution marging/income before taxes

Working notes:

			15% comm		20% comm		7.5% comm
Sales			25,000,000	100%	25,000,000	100%	25,000,000	100%
Variable expenses:
manufacturing			11,250,000		11,250,000		11,250,000
comissions (15%;20%,7.5%)			3,750,000		5000000		1875000
total variable expense			15,000,000	60.0%	16,250,000	65.0%	13,125,000	52.5%
contribution margin			10,000,000	40.0%	8,750,000	35.0%	11,875,000	47.5%
fixed expenses
manufacturing overhead			3,500,000		3,500,000		3,500,000
marketing			175,000		175,000		3,925,000
administrative			2,160,000		2,160,000		2,045,000
interest			875,000		875,000		875,000
total fixed expense			6,710,000		6,710,000		10,345,000
income before income taxes			3,290,000		2,040,000		1,530,000
income taxes (30%)			987000		612000		459000
net income			2,303,000		1,428,000		1,071,000