Managerial Accounting: Creating Value in a Dynamic Business Environment
11th Edition
ISBN: 9781259569562
Author: Ronald W Hilton Proffesor Prof, David Platt
Publisher: McGraw-Hill Education
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Chapter 7, Problem 52P
Colorado 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. Colorado Telecom’s
After the profit plan was completed for the coming year. Colorado 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 Liliana Richmond, the company’s president, believed had gone too far. She asked Molly Rosewood, the most sales-oriented officer in her production-oriented company, to estimate the cost to the company of employing its own sales force. Rosewood’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.
Required:
- 1. Calculate Colorado Telecom’s estimated break-even point in sales dollars for 20x2.
- a. If the events that are represented in the budgeted income statement fake place.
- b. If the company employs its own sales force.
- 2. If Colorado 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 for 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.
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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 19% 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 CompanyBudgeted Income StatementFor the Year Ended December 31Sales $ 19,900,000Manufacturing expenses:Variable $ 7,850,000Fixed overhead 2,860,000 10,710,000Gross margin 9,190,000Selling and administrative expenses:Commissions to agents 3,781,000Fixed marketing expenses 250,000*Fixed administrative expenses 2,450,000 6,481,000Net operating income $ 2,709,000Fixed interest expenses 670,000Income before income taxes 2,039,000Income taxes (20%) 407,800Net income 1,631,200*Primarily depreciation on storage facilities.As Barbara handed the statement to…
ittman 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 15% for all items sold.
Barbara Cheney, Pittman’s controller, has just prepared the company’s budgeted income statement for next year as follows:
Pittman CompanyBudgeted Income StatementFor the Year Ended December 31
Sales
$
20,000,000
Manufacturing expenses:
Variable
$
9,000,000
Fixed overhead
2,800,000
11,800,000
Gross margin
8,200,000
Selling and administrative expenses:
Commissions to agents
3,000,000
Fixed marketing expenses
140,000
*
Fixed administrative expenses
1,960,000
5,100,000
Net operating income
3,100,000
Fixed interest expenses
700,000
Income before income taxes
2,400,000…
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 15% for all items sold.
Barbara Cheney, Pittman’s controller, has just prepared the company’s budgeted income statement for next year as follows:
Pittman CompanyBudgeted Income StatementFor the Year Ended December 31
Sales
$ 25,000,000
Manufacturing expenses:
Variable
$ 11,250,000
Fixed overhead
3,500,000
14,750,000
Gross margin
10,250,000
Selling and administrative expenses:
Commissions to agents
3,750,000
Fixed marketing expenses
175,000*
Fixed administrative expenses
2,160,000
6,085,000
Net operating income
4,165,000
Fixed interest expenses
875,000
Income before income taxes
3,290,000
Income taxes (30%)
987,000
Net income
$ 2,303,000
*Primarily depreciation on storage…
Chapter 7 Solutions
Managerial Accounting: Creating Value in a Dynamic Business Environment
Ch. 7 - Prob. 1RQCh. 7 - What is the meaning of the term unit contribution...Ch. 7 - What information is conveyed by a...Ch. 7 - What does the term safety margin mean?Ch. 7 - Prob. 5RQCh. 7 - Delmarva Oyster Company has been able to decrease...Ch. 7 - In a strategy meeting, a manufacturing companys...Ch. 7 - What will happen to a companys break-even point if...Ch. 7 - Prob. 9RQCh. 7 - How can a profit-volume graph be used to predict a...
Ch. 7 - List the most important assumptions of...Ch. 7 - Why do many operating managers prefer a...Ch. 7 - Prob. 13RQCh. 7 - East Company manufactures VCRs using a completely...Ch. 7 - When sales volume increases, which company will...Ch. 7 - What does the term sales mix mean? How is a...Ch. 7 - A car rental agency rents subcompact, compact, and...Ch. 7 - How can a hotels management use cost-volume-profit...Ch. 7 - How could cost-volume-profit analysis be used in...Ch. 7 - Prob. 20RQCh. 7 - Prob. 21RQCh. 7 - Explain briefly how activity-based costing (ABC)...Ch. 7 - Fill in the missing data for each of the following...Ch. 7 - Prob. 24ECh. 7 - Rosario Company, which is located in Buenos Aires,...Ch. 7 - The Houston Armadillos, a minor-league baseball...Ch. 7 - Prob. 27ECh. 7 - Europa Publications, Inc. specializes in reference...Ch. 7 - Tims Bicycle Shop sells 21-speed bicycles. For...Ch. 7 - A contribution income statement for the Nantucket...Ch. 7 - Refer to the income statement given in the...Ch. 7 - Hydro Systems Engineering Associates, Inc....Ch. 7 - Disk City, Inc. is a retailer for digital video...Ch. 7 - CollegePak Company produced and sold 60,000...Ch. 7 - Prob. 36PCh. 7 - Prob. 37PCh. 7 - Prob. 38PCh. 7 - Consolidated Industries is studying the addition...Ch. 7 - Serendipity Sound, Inc. manufactures and sells...Ch. 7 - Prob. 41PCh. 7 - The European Division of Worldwide Reference...Ch. 7 - Prob. 43PCh. 7 - Celestial Products, Inc. has decided to introduce...Ch. 7 - Prob. 45PCh. 7 - Jupiter Game Company manufactures pocket...Ch. 7 - Prob. 47PCh. 7 - Condensed monthly income data for Thurber Book...Ch. 7 - Cincinnati Tool Company (CTC) manufactures a line...Ch. 7 - Ohio Limestone Company produces thin limestone...Ch. 7 - Prob. 51PCh. 7 - Colorado Telecom, Inc. manufactures...Ch. 7 - Prob. 53CCh. 7 - Prob. 54CCh. 7 - Niagra Falls Sporting Goods Company, a wholesale...
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