The breakdown of the $3,300,000 cost follows: Salaries: Sales manager Salespersons Travel and entertainment Advertising Total...

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The breakdown of the $3,300,000 cost follows: Salaries: Sales manager Salespersons Travel and entertainment Advertising Total $ 137,500 825,000 550,000 1,787,500 $ 3,300,000 "Super, replied Karl. "And I noticed the $3,300,000 equals what we're paying the agents under the old 15% commission rate." "It's even better than that, explained Barbara. "We can actually save $101,200 a year because that's what we're paying our auditors to check out the agents' reports. So our overall administrative expenses would be less." "Pull all of these numbers together and we'll show them to the executive committee tomorrow," said Karl. "With the approval of the committee, we can move on the matter immediately." Required: 1. Compute Pittman Company's break-even point in dollar sales for next year assuming: a. The agents' commission rate remains unchanged at 15%. b. The agents' commission rate is increased to 20%. c. The company employs its own sales force. 2. Assume Pittman Company decides to continue selling through agents and pays the 20% commission rate. Calculate the dollar sales required to generate the same net income as contained in the budgeted income statement for next year. 3. Calculate the dollar sales at which net income would be equal regardless of whether Pittman Company sells through agents (at a 20% commission rate) or employs its own sales force. 4. Compute the degree of operating leverage the company would expect to have at the end of next year assuming: a. The agents' commission rate remains unchanged at 15%. b. The agents' commission rate is increased to 20%. c. The company employs its own sales force. Use income before income taxes in your operating leverage computation. The breakdown of the $3,300,000 cost follows: Salaries: Sales manager Salespersons Travel and entertainment Advertising Total $ 137,500 825,000 550,000 1,787,500 $ 3,300,000 "Super, replied Karl. "And I noticed the $3,300,000 equals what we're paying the agents under the old 15% commission rate." "It's even better than that, explained Barbara. "We can actually save $101,200 a year because that's what we're paying our auditors to check out the agents' reports. So our overall administrative expenses would be less." "Pull all of these numbers together and we'll show them to the executive committee tomorrow," said Karl. "With the approval of the committee, we can move on the matter immediately." Required: 1. Compute Pittman Company's break-even point in dollar sales for next year assuming: a. The agents' commission rate remains unchanged at 15%. b. The agents' commission rate is increased to 20%. c. The company employs its own sales force. 2. Assume Pittman Company decides to continue selling through agents and pays the 20% commission rate. Calculate the dollar sales required to generate the same net income as contained in the budgeted income statement for next year. 3. Calculate the dollar sales at which net income would be equal regardless of whether Pittman Company sells through agents (at a 20% commission rate) or employs its own sales force. 4. Compute the degree of operating leverage the company would expect to have at the end of next year assuming: a. The agents' commission rate remains unchanged at 15%. b. The agents' commission rate is increased to 20%. c. The company employs its own sales force. Use income before income taxes in your operating leverage computation.

Answer rating: 100% (QA)

1 Breakeven Point in Dollar Sales a Agents commission rate remains unchanged at 15 Breakeven Sales 3... View the full answer