*PLEASE MAKE SURE TO SHOW HOW YOU GOT SOLUTIONS* Pittman Company is a small but
ID: 2426317 • Letter: #
Question
*PLEASE MAKE SURE TO SHOW HOW YOU GOT SOLUTIONS*
Pittman Company is a small but growing manufacturer of telecommunications equipment. The company has no sales force of its own; rather, it relies completely on independent sales agents to market its products. These agents are paid a sales commission of 14% for all items sold Barbara Cheney, Pittman's controller, has just prepared the company's budgeted income statement for next year. The statement follows Pittman Company Budgeted Income Statement For the Year Ended December 31 $ 18,400,000 Sales Manufacturing expenses: Variable Fixed overhead 7,600,000 2,660,000 10,260,000 Gross margin Selling and administrative expenses 8,140,000 Commissions to agents 2,576,000 200,000* Fixed marketing expenses Fixed administrative expenses 2,200,000 4,976,000 Net operating income Fixed interest expenses $3,164,000 620,000 ncome before income taxes Income taxes (20%) 2,544,000 508,800 Net income 2,035,200 Primarily depreciation on storage facilitiesExplanation / Answer
Answer
Answer c
Pittman Company
Statement of breakeven sales
Figures in$
Particulars
Amount
Sales
a
18400000
Variable
Manufacturing expenses
b
7600000
Selling and administrative expenses
c
2576000
Contribution (a-b-c)
d
8224000
P/V Ratio (d/a)*100
e
44.70
Revised Fixed cost
Manufacturing
f
2660000
Marketing
g
2776000
(200000+2576000)
Administrative
h
2085000
(2200000-115000)
Total revised fixed cost (f+g+h)
i
7521000
Breakeven point in dollar sales (i*100/e)
16827140.08
Answer : If Company employs its own sales force, breakeven point in dollar sales is $ 16,827,140.08
Answer 3.
Statement of Sales at which net income would be equal in both option
Figures in $
Revised Fixed cost
Revised Fixed cost (Employs its own sales force)
Fixed Cost (Sells through agent)
Change in Cost
Manufacturing
a
2660000
2660000
Marketing
b
2776000
200000
(200000+2576000)
Administrative
c
2085000
2200000
(2200000-115000)
Total revised fixed cost (a+b+c)
d
7521000
5060000
2461000
Variable cost as proportion of sales
Manufacturing expenses
e
0.4130
0.4130
(As % of sales)
(7600000/18400000)
(7600000/18400000)
Selling and administrative expenses
f
0.083
0.19
(Commission in % of sales)
Total Variable cost as proportion of sales (e+f)
g
0.4960
0.6030
0.1070
Sales at which net income would be equal in both option (i.e. selling though agents or employing its own sales force)
(d/g)
23000000
(Change in Fixed cost/Change in Variable cost as proportion of sales)
Answer : Sales at which net income would be equal in both option (i.e. selling though agents or employing its own sales force) is $ 23,000,000
Pittman Company
Statement of breakeven sales
Figures in$
Particulars
Amount
Sales
a
18400000
Variable
Manufacturing expenses
b
7600000
Selling and administrative expenses
c
2576000
Contribution (a-b-c)
d
8224000
P/V Ratio (d/a)*100
e
44.70
Revised Fixed cost
Manufacturing
f
2660000
Marketing
g
2776000
(200000+2576000)
Administrative
h
2085000
(2200000-115000)
Total revised fixed cost (f+g+h)
i
7521000
Breakeven point in dollar sales (i*100/e)
16827140.08
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