Question

Check Case 5-33 Cost Structure; Break-Even and Target Profit Analysis (LO5-4, LO5-5, LO5-6] 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: $21,000,000 12,390,000 8,610,000 Pittman Company Budgeted Income Statement For the Year Ended December 31 Sales Manufacturing expenses: Variable $ 9,450,000 Fixed overhead 2,940,000 Gross margin Selling and administrative expenses : Commissions to agents 3,150,000 Fixed marketing expenses 147,000* Fixed administrative expenses 2,000,000 Net operating income Fixed interest expenses Income before income taxes Income taxes (30%) Net income 3,313,000 735,000 2,578,000 773,400 $ 1,804,600 *Primarily depreciation on storage facilities.

Answer 1

The answer below provides the break even sales in dollars for all the cases asked. The calculation is done in '000 $.

1. G'Ovo Particulars a sol commission Dags commission (c) owe salesforce للمه 2,000 21000 9,450 4200 (21000 x 20%.) 9,450 1575 (21000X 7.50 The Time 7350 9975 21 poo ovariable expenses: Manufacturing 9,450 Commission 3150 (21000 x151 Contribution margin (B) 8400 contribution margin 40%. ratio (109) Fixed expenses (c) e Manufacturing read marketing Administrative 2000 Interest 735 351. 47.51. T- 2940 2.940 2940 147 14+ 147 +3150 2000 -96.6 2000 735 735 1528 1099.6 2578 Income before income tax 773.4 458.4 329.88 - income taxes (300 769.72 1804.6 1069.6 Net income o break = even point fixed expenses contribution margin ratio d) 8 = $ 58 22000 0.4 =$14,555,000 by BEP = $5822 000 0.35 (6) SEP - $ 8875 400 0.475 = $ 18685052 = $16634,286