15% commission 20% comission

Sales $ 20,500,000 100% $ 20,500,000

Variable Expenses:
Manufacturing $ 9,225,000 $ 9,225,000
Commission(15%,20%,7.5%) $ 3,075,000 $ 4,100,000
Total Variable Expenses $ 12,300,000 60.00% $ 13,325,000

Contribtution Margin $ 8,200,000 40.00% $ 7,175,000

Fixed Expenses:
Manufacturing overhead $ 2,870,000 $ 2,870,000
Marketing $ 143,500 $ 143,500
Administrative $ 1,980,000 $ 1,980,000
Interest $ 717,500 $ 717,500
Total fixed Expenses $ 5,711,000 $ 5,711,000

Income Before income Taxes $ 2,489,000 $ 1,464,000

Income Taxes(30%) $ 746,700 $ 439,200
Net Income $ 1,742,300 $ 1,024,800

1)When the income before taxes is zero, income taxes will also be zero and net income will be zero. Therefore, the break-even
calculations can be based on the income before taxes

a.Break-even point in dollar sales if the commission remains 15%

Dollars sales to breakeven=Fixed expenses /CM ratio=

b.Break-even point in dollar sales if the commission increases to 20%

Dollars sales to breakeven=Fixed expenses /CM ratio=

c.Break-even point in dollar sales if the company employs its own sales force:

Dollars sales to breakeven=Fixed expenses /CM ratio=

2)In order to generate a $1,742,300 net income, the company must generate $2,489,000 in income before taxes. Therefore,

Dollars sales to attain target=(Target Income before taxes+fixed expenses)/CM ratio

=(2,489,000+5,711,000)/35%=

3)To determine the volume of sales at which net income would be equal under either the 20% commission plan or the compan
volume of sales where costs before income taxes under the two plans are equal.
 X = Total sales revenue
0.65X + $5,711,000 = 0.525X + $8,691,700

0.125 X=

X= $ 23,845,600

Thus, at a sales level of $23,845,600 either plan would yield the same income before taxes and net income. Below this sales lev
yield the largest net income; above this sales level, the sales force plan would yield the largest net income.

4)
15% commission 20% comission

Contribution Margin(a) $ 8,200,000 $ 7,175,000

Income Before Taxes(b) $ 2,489,000 $ 1,464,000
Operating Levarage(a/b) 3.29 4.90
 Own sales force
100% $ 20,500,000 100%

$ 9,225,000
$ 1,537,500
65.00% $ 10,762,500 52.50%

35.00% $ 9,737,500 47.50%

$ 2,870,000
$ 3,218,500 (143500+3,075,000)
$ 1,885,700 (1,980,000-94,300)
$ 717,500
$ 8,691,700

$ 1,045,800
$ 313,740
$ 732,060

me will be zero. Therefore, the break-even

(5,711,000)/40%= $ 14,277,500

(5,711,000)/35%= $ 16,317,143

(8,691,700)/47.50%= $ 18,298,316

,000 in income before taxes. Therefore,

$ 23,428,571

er the 20% commission plan or the company sales force plan, we find the
 tal sales revenue
000 = 0.525X + $8,691,700

$ 2,980,700

e taxes and net income. Below this sales level, the commission plan would
he largest net income.

Own sales force

$ 9,737,500
$ 1,045,800
9.31
 15% commission 20% comission
Sales $ 16,000,000 100% $ 16,000,000
Variable Expenses:
Manufacturing $ 7,200,000 $ 7,200,000
Commission(15%,20%,7.5%) $ 2,400,000 $ 3,200,000
Total Variable Expenses $ 9,600,000 60.00% $ 10,400,000

Contribtution Margin $ 6,400,000 40.00% $ 5,600,000

Fixed Expenses:
Manufacturing overhead $ 2,340,000 $ 2,340,000
Marketing $ 120,000 $ 120,000
Administrative $ 1,800,000 $ 1,800,000
Interest $ 540,000 $ 540,000
Total fixed Expenses $ 4,800,000 $ 4,800,000

Income Before income Taxes $ 1,600,000 $ 800,000

Income Taxes(30%) $ 480,000 $ 240,000
Net Income $ 1,120,000 $ 560,000

1)When the income before taxes is zero, income taxes will also be zero and net income will be zero. Therefore, the break-even
calculations can be based on the income before taxes

a.Break-even point in dollar sales if the commission remains 15%

Dollars sales to breakeven=Fixed expenses /CM ratio=

b.Break-even point in dollar sales if the commission increases to 20%

Dollars sales to breakeven=Fixed expenses /CM ratio=

c.Break-even point in dollar sales if the company employs its own sales force:

Dollars sales to breakeven=Fixed expenses /CM ratio=

2)In order to generate a $1,120,000 net income, the company must generate $1,600,000 in income before taxes. Therefore,

Dollars sales to attain target=(Target Income before taxes+fixed expenses)/CM ratio

=(1,600,000+4,800,000)/35%=

3)To determine the volume of sales at which net income would be equal under either the 20% commission plan or the compan
volume of sales where costs before income taxes under the two plans are equal.
 X = Total sales revenue
0.65X + $4,800,000 = 0.525X + $7,125,000

0.125 X=

X= $ 18,600,000

Thus, at a sales level of $18,600,000 either plan would yield the same income before taxes and net income. Below this sales lev
yield the largest net income; above this sales level, the sales force plan would yield the largest net income.

4)
15% commission 20% comission

Contribution Margin(a) $ 6,400,000 $ 5,600,000

Income Before Taxes(b) $ 1,600,000 $ 800,000
Operating Levarage(a/b) 4.00 7.00

5)
Company should continue with 20% commission since with its own sales force data the profit is less than when we project pay
commission
 Own sales force
100% $ 16,000,000 100%

$ 7,200,000
$ 1,200,000
65.00% $ 8,400,000 52.50%

35.00% $ 7,600,000 47.50%

$ 2,340,000
$ 2,520,000 (120000+2,400,000)
$ 1,725,000 (1,800,000-75,000)
$ 540,000
$ 7,125,000

$ 475,000
$ 142,500
$ 332,500

me will be zero. Therefore, the break-even

(4,800,000)/40%= $ 12,000,000

(4,800,000)/35%= $ 13,714,286

(7,125,000)/47.50%= $ 15,000,000

,000 in income before taxes. Therefore,

$ 18,285,714

er the 20% commission plan or the company sales force plan, we find the
 tal sales revenue
000 = 0.525X + $7,125,000

$ 2,325,000

e taxes and net income. Below this sales level, the commission plan would
he largest net income.

Own sales force

$ 7,600,000
$ 475,000
16.00

he profit is less than when we project paying 20%

 15% commission 20% comission
Sales $ 17,000,000 100% $ 17,000,000
Variable Expenses:
Manufacturing $ 7,650,000 $ 7,650,000
Commission(15%,20%,7.5%) $ 2,550,000 $ 3,400,000
Total Variable Expenses $ 10,200,000 60.00% $ 11,050,000

Contribtution Margin $ 6,800,000 40.00% $ 5,950,000

Fixed Expenses:
Manufacturing overhead $ 2,380,000 $ 2,380,000
Marketing $ 119,000 $ 119,000
Administrative $ 1,840,000 $ 1,840,000
Interest $ 595,000 $ 595,000
Total fixed Expenses $ 4,934,000 $ 4,934,000

Income Before income Taxes $ 1,866,000 $ 1,016,000

Income Taxes(30%) $ 559,800 $ 304,800
Net Income $ 1,306,200 $ 711,200

1)When the income before taxes is zero, income taxes will also be zero and net income will be zero. Therefore, the break-even
calculations can be based on the income before taxes

a.Break-even point in dollar sales if the commission remains 15%

Dollars sales to breakeven=Fixed expenses /CM ratio=

b.Break-even point in dollar sales if the commission increases to 20%

Dollars sales to breakeven=Fixed expenses /CM ratio=

c.Break-even point in dollar sales if the company employs its own sales force:

Dollars sales to breakeven=Fixed expenses /CM ratio=

2)In order to generate a $1,306,200 net income, the company must generate $1,866,000 in income before taxes. Therefore,

Dollars sales to attain target=(Target Income before taxes+fixed expenses)/CM ratio

=(1,866,000+4,934,000)/35%=

3)To determine the volume of sales at which net income would be equal under either the 20% commission plan or the compan
volume of sales where costs before income taxes under the two plans are equal.
 X = Total sales revenue
0.65X + $4,934,000 = 0.525X + $7,405,800

0.125 X=

X= $ 19,774,400

Thus, at a sales level of $19,774,400 either plan would yield the same income before taxes and net income. Below this sales lev
yield the largest net income; above this sales level, the sales force plan would yield the largest net income.

4)
15% commission 20% comission

Contribution Margin(a) $ 6,800,000 $ 5,950,000

Income Before Taxes(b) $ 1,866,000 $ 1,016,000
Operating Levarage(a/b) 3.64 5.86
 Own sales force
100% $ 17,000,000 100%

$ 7,650,000
$ 1,275,000
65.00% $ 8,925,000 52.50%

35.00% $ 8,075,000 47.50%

$ 2,380,000
$ 2,669,000 (119000+2,550,000)
$ 1,761,800 (1,840,000-78,200)
$ 595,000
$ 7,405,800

$ 669,200
$ 200,760
$ 468,440

me will be zero. Therefore, the break-even

(4,934,000)/40%= $ 12,335,000

(4,934,000)/35%= $ 14,097,143

(7,405,800)/47.50%= $ 15,591,158

,000 in income before taxes. Therefore,

$ 19,428,571

er the 20% commission plan or the company sales force plan, we find the
 tal sales revenue
000 = 0.525X + $7,405,800

2471800

e taxes and net income. Below this sales level, the commission plan would
he largest net income.

Own sales force

$ 8,075,000
$ 669,200
12.07