Syracuse Telecom, Inc. manufactures telecommunications equipment. The company has always been production oriented and sells its products through agents. Agents are paid a commission of 15 percent of the selling price. Syracuse Telecom’s budgeted income statement for 20x2 follows:

SYRACUSE TELECOM, INC.

Budgeted Income Statement

For the Year Ended December31, 20x2

(In thousands)

Sales ................ $16,000

Manufacturing costs:

Variable ............ $7,200

Fixed overhead .......... 2,340 9,540

Gross margin ............. $ 6,460

Selling aril administrative expenses

Commissions .......... $2,400

Fixed marketing expenses ..... 140

Fixed administrative expenses .....1,780 4,320

Net operating income .......... $ 2,140

Less fixed interest expense ........ 540

Income before income taxes ......... $ 1,600

Less income taxes (30%) ......... 480

Net income ............... $ 1,120

After the profit plan was completed for the coining year. Syracuse Telecom’s sales agents demanded that the commissions be increased to 22½ percent of the selling price. This demand was the latest in a series of actions that Vinnie McGraw, the company’s president, believed had gone too far. He asked Maureen Elliott, the most sales-oriented office in his production-oriented company, to estimate the cost to Syracuse Telecom of employing its own sales force. Elliott’s estimate of the additional annual cost of employing its own sales force, exclusive of commissions, follows. Sales personnel would receive a commission of 10 percent of the selling price in addition to their salary.

Estimated Annual Cost of

Employing a Company Sales Force

(in thousands)

Salaries:

Sales manager ................ $ 100

Sales personnel ............... 1,000

Travel and entertainment .................. 400

Fixed marketing costs ................. 900

Total .......................$ 2,400

Required:

1. Calculate Syracuse Telecom’s estimated break-even point in sales dollars for 20x2.

a. If the events that are represented in the budgeted income statement take place.

b. If the company employs its own sales force.

2. If Syracuse Telecom continues to sell through agents and pays the increased commission of 22½ percent of the selling price, determine the estimated volume in sales dollars ft 20x2 that would be required to generate the same net income as projected in the budgeted income statement.

3. Determine the estimated volume in sales dollars that would result in equal net income for 20x2 regardless of whether the company continues to sell through agents and pays a commission of 22½ percent of the selling price or employs its own sales force.