The company that you work for as a managerial accountant uses independent agents to sell its products.
Question:
Management wants to examine the possibility of employing the company's own salespeople. The company would need a sales manager at an annual salary of $60,000 and three salespeople at an annual salary of $30,000 each, plus a commission of 5% of sales. All other fixed costs as well as the variable cost percentages would remain the same as in the above pro forma income statement.
Instructions
(a) Based on the pro forma income statement you have already prepared, calculate the break-even point in sales dollars for the company for the year ending April 30, 2016.
(b) Calculate the break-even point in sales dollars for the year ending April 30, 2016, if the company uses its own sales people.
(c) Calculate the volume of sales dollars required for the year ending April 30, 2016, to have the same operating income as projected in the pro forma income statement if the company continues to use the independent sales agents and agrees to their demand for a 20% sales commission.
(d) Calculate the estimated sales volume in sales dollars that would generate an identical operating income for the year ending April 30, 2016, regardless of whether the company employs its own salespeople or continues to use the independent sales agents and pays them a 20% commission.
Step by Step Answer:
Managerial Accounting Tools for Business Decision Making
ISBN: 978-1118856994
4th Canadian edition
Authors: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso, Ibrahim M. Aly