Managerial Accounting: Creating Value in a Dynamic Business Environment
12th Edition
ISBN: 9781260417074
Author: HILTON, Ronald
Publisher: MCGRAW-HILL HIGHER 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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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.
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Chapter 7 Solutions
Managerial Accounting: Creating Value in a Dynamic Business Environment
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