6. Please check and fill the box where answers needed thanks it is important to

Question

6. Please check and fill the box where answers needed thanks it is important to my graduate.

value: 15.00 points 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 16% 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 Sales Manufacturing expenses 19,000,000 Variable Fixed overhead 7,700,000 2,740,000 10,440,000 Gross margin Selling and administrative expenses 8,560,000 Commissions to agents 3,040,000 220,000* Fixed marketing expenses Fixed administrative expenses 2,300,000 5,560,000 Net operating income Fixed interest expenses S 3,000,000 640,000 Income before income taxes Income taxes (30%) 2,360,000 708,000 Net income 1,652,000 *Primarily depreciation on storage facilities. As Barbara handed the statement to Karl Vecci, Pittman's president, she commented, "I went ahead and used the agents, 16% commission rate in completing these statements, but we've just learned that they refuse to handle our products next year unless we increase the commission rate to 21%." That's the last straw, Karl replied angrily. "Those agents have been demanding more and more, and

Explanation / Answer

1. a. Break even sales= 12091954

Workings:

variable costing income statement:

Break even sales:

1. b. Break even sales= 13662338

workings:

variable costing income statement:

Break even sales:

1.c break even sales= 13739496

variable costing income statement:

break even sales:

2. Required sales= 21454545

3. at 13880952 sales net income is equal between two options

4.a degree of operating leverage= 36.36%

degree of operating leverage = (change in sales/sales)/ (change in EBIT/EBIT)

Leverage % = (1000000/19000000)/(435000/3005000) = 36.36%

4.b. 28.09%

Leverage= (1000000/19000000)/(385000/2055000)= 28.09%

4.c 27.69%

Leverage= (1000000/19000000)/(595000/3130000) = 27.69%

Particulars Amount Sales 19,000,000 variable costs Variable manf costs 7700000 commission to agents 3040000 10,740,000 Contribution 8,260,000 Fixed costs: Fixed overhead 2740000 Fixed marketing expenses 220000 Fixed adm expenses 2300000 5,260,000 EBIT 3,000,000 Less: interest 640000 EBT 2,360,000 Less: tax 30% 708000 Net income 1,652,000

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