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 items sold Barbara Cheney, Pittman's controller, has just prepared the company's budgeted income statement for next year as follows: $ 25,000, see 14,758,888 10,250,eee Pittman Company Budgeted Income Statement For the Year Ended December 31 Sales Manufacturing expenses: Variable $11,250,000 Fixed overhead 3. See ee Gross margin Selling and administrative expenses: Comissions to agents 3,750,000 Fixed sarketing expenses 175, eee Fixed administrative expenses 2.160,000 Net operating income Fixed interest expenses Income before income taxes Income taxes (30%) Net income 6,085, eee 4,165, eee 875, eee 3,290,000 987,00 2, 303, eee $ Prev 1 of 1 Next

i need help with 1,2,3, and 4. can you please show me how you arrived at the answers. thanks so much.

Answer 1

Refer the below images for the above asked questions, in a detailed way of solution.
solution : Before proceedings restructure data into three alternatives (The to solution, it is helpful first to contribution format for each of the data in the Statements below are in thousands). paytidars 151. Commission 204 commission $ 25000 tool own sales $25000 force 1001 - $ 25000 1004 $ 11950 * 3750 f4250 & 9000 $usso $7875 $13125 911875 4 15000 Sales Variable expenses? Manufacturing Commissions (1500, 201, 7.5+) Tosa variable expects Contribution margin (Sales - Variable) fixed expenses & Mfg overhead Marketing Administrative Interest 601 $16250 $8450 651. 351 52-511 47.51 41000D 409. $3500 *3500 $3500 $175 $2160 $875 $ 3925* 82045** $2160 1875 $875 1 6710 $6710 $10345 Total fixed expense $3920 $ 2040 Income berote income taxes. Income taxes (301) 91530 $ 459 $1176 $612 $ 107 $2744 $ 1428 Net income $ 175000 $3750000 = = $3925 $3925000 1000 $2045000 1000 DAN xx & 2160000 – $115000 = = $2045

O when the income before taxes is zero, income be also zero and net income will be zero. the break even calculations can be based on taxes will Therefore, income befor a. Break even point in ddears Dollar Sales to break even = sales if commission remains 1610 Fixed expenses Contribution margin ratio 96710 000 40% (or) 6:40 $ 1677 Jooo b. Break even point in dollar sales if the commission increases to 2016 : Fixed expenses Dollar sales to break even = Contribution margin Vatio 2 § 6710000 3510 Cory 0.35 - $19171429 in it the company c. Break even employs point its own dollar sales sales force : Dollar sales to break even Fixed expenses = contribotion margin ratio 29 10345000 47.51. (or) 0.475 = $2177 89 47

2 In order company Therefore, to most generate generate a $2744000 net income, the & 3920 000 in income before tares. Taxes & income before fixed Target daraet - to attain Dollars sales expense contribution margin ratio = $ 3920000 + $ 6710 600 354 (68) 0835 a $ 10.630000 0-35 = $30371429 6 To determine the volume would equal under either the company Sates force Sales where costs before are easual. of sales at which net income the 201 commission plan cox) plan, we find the vdome of income taxes under two plans x - Topal Sales revenue 0065x + & 6710 000 = $ 10 345000 + 0.5254 0.125 X = 4 3635000 X = $3631000 00125 X = $29080000

Thus, at a yield the Below this the largest Sales force sales level of 129080000, either plan would same income before taxes at net income. Sales level, the commission Plan would yield net income, above this sales level, the plan would yield the largest net income. a, b, and a : partiwlars commission contribution margin (part 1) (a) $ 10000000 Income before taxes (part 1) (b) $3980000 i. Degree of operating leverage: 2.55 (a) (b) 201 Commission $8750 000 $2040000 Own Sales force $ 10875000 41530000 4.29 7676