Power Trading Ltd is a wholesale supply company which engages external sales agents to market the...

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Power Trading Ltd is a wholesale supply company which engages external sales agents to market the company's products. These sales agents currently receive a commission of 20% on sales revenues, but they now demand an increase of commission rate to 25%. The management had already prepared its budget for next year before the sales agents requested the increase in commissions. The budgeted income statement of the company is shown below: $ $ Sales revenues 10,000,000 Cost of sales (variable) 6,000,000 Gross profit 4,000,000 Operating expenses: Sales commissions (variable) 2,000,000 Administrative (fixed) 300,000 2,300,000 Net profit 1,700,000 The management is considering the possibility of employing its own salespersons. They planned to employ three sales executives at a fixed annual salary of $50,000 each, plus commissions of 5% on sales revenues. In addition, a sales manager would be employed at a fixed annual salary of $250,000. Question 5 Required: (a) Based on the company's budgeted income statement and assuming that the company continues to engage external sales agents who are paid the current commission rate of 20% of sales, calculate the break-even point in sales dollars. (5 marks) (b) Determine the new break-even point in sales dollars assuming: (i) the commission paid to external sales agents is increased to 25% of sales, and (ii) the II Proctorio is sharing your screen. Stop sharing Hide Power Trading Ltd is a wholesale supply company which engages external sales agents to market the company's products. These sales agents currently receive a commission of 20% on sales revenues, but they now demand an increase of commission rate to 25%. The management had already prepared its budget for next year before the sales agents requested the increase in commissions. The budgeted income statement of the company is shown below: $ $ Sales revenues 10,000,000 Cost of sales (variable) 6,000,000 Gross profit 4,000,000 Operating expenses: Sales commissions (variable) 2,000,000 Administrative (fixed) 300,000 2,300,000 Net profit 1,700,000 The management is considering the possibility of employing its own salespersons. They planned to employ three sales executives at a fixed annual salary of $50,000 each, plus commissions of 5% on sales revenues. In addition, a sales manager would be employed at a fixed annual salary of $250,000. Question 5 Required: (a) Based on the company's budgeted income statement and assuming that the company continues to engage external sales agents who are paid the current commission rate of 20% of sales, calculate the break-even point in sales dollars. (5 marks) (b) Determine the new break-even point in sales dollars assuming: (i) the commission paid to external sales agents is increased to 25% of sales, and (ii) the II Proctorio is sharing your screen. Stop sharing Hide

Answer rating: 100% (QA)

Answer a To calculate the breakeven point in sales dollars we need to find the level of sales at which the companys net profit is zero From the budget... View the full answer