Lionel Corporation manufactures pharmaceutical products sold through a network of sales agents in the United States and Canada.The agents are currently paid an 18% commission on sales; that percentage was used when Lionel prepared the following budgetedincome statement for the fiscal year ending June 30, 2019:SalesCost of goods soldVariableFixedGross profitSelling and administrative costsCommissions.Lionel CorporationBudgeted Income StatementFor the Year Ending June 30, 2019($000 omitted)Fixed advertising costFixed administrative costOperating incomeFixed interest cost.Income before income taxes.Income taxes (308)Net income$ 13,3203,552$ 5,3288882,368SalesVariable costs:Since the completion of the income statement, Lionel has learned that its sales agents are requiring a 5% increase in their commissionrate (to 23%) for the upcoming year. As a result, Lionel's president has decided to investigate the possibility of hiring its own sales staffin place of the network of sales agents and has asked Alan Chen, Lionel's controller, to gather information on the costs associated withthis change.Fixed costs:Alan estimates that Lionel must hire eight salespeople to cover the current market area, at an average annual payroll cost for eachemployee of $80,000, including fringe benefits expense. Travel and entertainment expenses is expected to total $710,000 for the year,and the annual cost of hiring a sales manager and sales secretary will be $205,000. In addition to their salaries, the eight salespeoplewill each earn commissions at the rate of 10% of sales. The president believes that Lionel also should increase its advertising budgetby $610,000 if the eight salespeople are hired.Required1. Determine Lionel's breakeven point (operating profit = 0) in sales dollars for the fiscal year ending June 30, 2019, if the companyhires its own sales force 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 volumein sales dollars that would be required to generate the operating profit as projected in the budgeted income statement.Contribution Income StatementComplete this question by entering your answers in the tabs below.$29,600Required 1 Required 2Determine Lionel's breakeven point (operating profit = 0) in sales dollars for the fiscal year ending June 30, 2019, if thecompany hires its own sales force and increases its advertising costs. Prove this by constructing a contribution incomestatement. (Do not round intermediate calculations. Enter your answers in thousands of dollars.)Breakeven point (in sales dollars)16,872$ 12,728

An income statement stands for the statement that shows profits and loss of the firm, its revenue…

Lionel Corporation manufactures pharmaceutical products sold through a network of sales agents in the United States and Canada. The agents are currently paid an 18% commission on sales; that percentage was used when Lionel prepared the following budgeted income statement for the fiscal year ending June 30, 2019:

Lionel Corporation manufactures pharmaceutical products sold through a network of sales agents in the United States and Canada. The agents are currently paid an 18% commission on sales; that percentage was used when Lionel prepared the following budgeted income statement for the fiscal year ending June 30, 2019:

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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