Chapter 5 - Cost Structure, Break-Even, and Target Profit Analysis

Brothers Company, LLC is a manufacturer of telecommunications equipment. To market its products, the company uses independent sales agents. The agents are paid a sales commission of 15% of the selling price of all items sold.

Laura Lee, Brothers Company, LLC's controller, has just prepared the company's budgeted income statement for next year as follows:

Brothers Company, LLC Budgeted Income Statement For the Year Ended December 31 Sales Manufacturing expenses: Variable $ 7,200,000 Fixed overhead 2,340,000 Gross margin Selling and administrative expenses: Commissions to agents 2,400,000 Fixed marketing expenses 120,000* Fixed administrative expenses 1,800,000 Net operating income Fixed interest expenses Income before income taxes Income taxes (30%) Net income *Primarily depreciation on storage facilities. $ 16,000,000 9,540,000 6,460,000 4,320,000 2,140,000 540,000 1,600,000 480,000 $ 1,120,000