Lionel Corporation manufactures pharmaceutical products sold through a network of sales agents in the United States and Canada. The agents are currently paid on 18% commission on sales; that percentage was used when Lionel prepared the following budgeted income statement for the fiscal year ending June 30, 2022 Sales Cost of goods sold Variable Fixed Gross profit Lionel Corporation Budgeted Income Statement For the Year Ending June 30, 2022 ($800 omitted) Selling and administrative costs Commissions Fixed advertising cost Fixed administrative cost Operating income Fixed interest cost Income before income taxes Income taxes (38%) Net income $ 30,300 $ 13,635 3,636 17,271 $ 13,029 $ 5,454 909 2,424 8,787 $ 4,242 758 $ 3,484 1,045 $ 2,439 Since the completion of the income statement, Lionel has learned that its sales agents are requiring a 5% increase in their commission rate (to 23%) for the upcoming year. As a result, Lionel's president has decided to investigate the possibility of hiring its own sales staff in place of the network of sales agents and has asked Alan Chen, Lionel's controller, to gather information on the costs associated with this change. Alan estimates that Lionel must hire eight salespeople to cover the current market area, at an average annual payroll cost for each employee of $80,000, including fringe benefits expense. Travel and entertainment expenses are expected to total $780,000 for the year, and the annual cost of hiring a sales manager and sales secretary will be $240,000. In addition to their salaries, the eight salespeople will each earn commissions at the rate of 10% of sales. The president believes that Lionel also should increase its advertising budget by $680,000 if the eight salespeople are hired. Required: 1. Determine Lionel's breakeven point (operating profit = 0) in sales dollars for the fiscal year ending June 30, 2022, if the company hires its own salesforce and increases its advertising costs. Prove this by constructing a contribution income statement. 2. If Lionel continues to sell through its network of sales agents and pays the higher commission rate, determine the estimated volume in sales dollars that would be required to generate the operating profit as projected in the budgeted income statement. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Determine Lionel's breakeven point (operating profit = 0) in sales dollars for the fiscal year ending June 30, 2022, if the company hires its own salesforce and increases its advertising costs. Prove this by constructing a contribution income statement. (Do not round intermediate calculations. Enter your answers in thousands of dollars.) Breakeven point (in sales dollars) Sales Variable costs: Cost of goods sold Sales commissions Contribution Income Statement S 0 Contribution margin S 0 Fixed costs: Exisiting Incremental Operating income(loss) S 0 S 0

Lionel Corporation manufactures pharmaceutical products sold through a network of sales agents in the United States and Canada. The agents are currently paid on 18% commission on sales; that percentage was used when Lionel prepared the following budgeted income statement for the fiscal year ending June 30, 2022 Sales Cost of goods sold Variable Fixed Gross profit Lionel Corporation Budgeted Income Statement For the Year Ending June 30, 2022 ($800 omitted) Selling and administrative costs Commissions Fixed advertising cost Fixed administrative cost Operating income Fixed interest cost Income before income taxes Income taxes (38%) Net income $ 30,300 $ 13,635 3,636 17,271 $ 13,029 $ 5,454 909 2,424 8,787 $ 4,242 758 $ 3,484 1,045 $ 2,439 Since the completion of the income statement, Lionel has learned that its sales agents are requiring a 5% increase in their commission rate (to 23%) for the upcoming year. As a result, Lionel's president has decided to investigate the possibility of hiring its own sales staff in place of the network of sales agents and has asked Alan Chen, Lionel's controller, to gather information on the costs associated with this change. Alan estimates that Lionel must hire eight salespeople to cover the current market area, at an average annual payroll cost for each employee of $80,000, including fringe benefits expense. Travel and entertainment expenses are expected to total $780,000 for the year, and the annual cost of hiring a sales manager and sales secretary will be $240,000. In addition to their salaries, the eight salespeople will each earn commissions at the rate of 10% of sales. The president believes that Lionel also should increase its advertising budget by $680,000 if the eight salespeople are hired. Required: 1. Determine Lionel's breakeven point (operating profit = 0) in sales dollars for the fiscal year ending June 30, 2022, if the company hires its own salesforce and increases its advertising costs. Prove this by constructing a contribution income statement. 2. If Lionel continues to sell through its network of sales agents and pays the higher commission rate, determine the estimated volume in sales dollars that would be required to generate the operating profit as projected in the budgeted income statement. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Determine Lionel's breakeven point (operating profit = 0) in sales dollars for the fiscal year ending June 30, 2022, if the company hires its own salesforce and increases its advertising costs. Prove this by constructing a contribution income statement. (Do not round intermediate calculations. Enter your answers in thousands of dollars.) Breakeven point (in sales dollars) Sales Variable costs: Cost of goods sold Sales commissions Contribution Income Statement S 0 Contribution margin S 0 Fixed costs: Exisiting Incremental Operating income(loss) S 0 S 0

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter1: Introduction To Cost Management

Section: Chapter Questions

Problem 1E: Classify each of the following actions as either being associated with the financial accounting...

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