Marston Corporation manufactures disposable thermometers thatare sold to hospitals through a network of independent sales agentslocated in the United States and Canada. These sales agents sell avariety of products to hospitals in addition to Marston'sdisposable thermometer. The sales agents are currently paid an 16%commission on sales, and this commission rate was used whenMarston's management prepared the following budgeted absorptionincome statement for the upcoming year.
Marston Corporation
Budgeted Income Statement Sales $ 33,000,000 Cost of goodssold: Variable $ 17,100,000 Fixed 2,790,000 19,890,000 Gross margin 13,110,000 Selling andadministrative expenses: Commissions 5,280,000 Fixed advertising expense 720,000 Fixed administrativeexpense 3,100,000 9,100,000 Net operatingincome $ 4,010,000
Since the completion of the abovestatement, Marstonâs management has learned that the independentsales agents are demanding an increase in the commission rate to18% of sales for the upcoming year. This would be the thirdincrease in commissions demanded by the independent sales agents infive years. As a result, Marstonâs management has decided toinvestigate the possibility of hiring its own sales staff toreplace the independent sales agents.
Marston's controller estimatesthat the company will have to hire eight salespeople to cover thecurrent market area, and the total annual payroll cost of theseemployees will be about $690,000, including fringe benefits. Thesalespeople will also be paid commissions of 10% of sales. Traveland entertainment expenses are expected to total about $330,000 forthe year. The company will also have to hire a sales manager andsupport staff whose salaries and fringe benefits will come to$180,000 per year. To make up for the promotions that theindependent sales agents had been running on behalf of Marston,management believes that the companyâs budget for fixed advertisingexpenses should be increased by $420,000.
Required: 1. Assuming sales of $33,000,000,construct a budgeted contribution format income statement for theupcoming year for each of the following alternatives (Enteryour answers in thousands of dollars (i.e., 15,000,000 should beentered as 15,000.)):
a. The independent sales agents' commission rate remains unchangedat 16%.
b. The independent sales agents' commission rate increases to18%.
c.
The company employs its own sales force.
2. Calculate Marston Corporation'sbreak-even point in sales dollars for the upcoming year assumingthe following: (Round the CM ratio to 2 decimal places.Enter your answers in whole dollars and not inthousands.)
a. The independent sales agents'commission rate remains unchanged at 16%.
b. The independent sales agents' commission rate increases to18%.
c.
The company employs its ownsales force.
3. Refer to your answer to (1)(b) above. If the company employs itsown sales force, what volume of sales would be necessary togenerate the net operating income the company would realize ifsales are $33,000,000 and the company continues to sell throughagents (at a 18% commission rate)? (Round the CM ratio to 2decimal places. Enter your answers in whole dollars and not inthousands.)
4. Determine the volume of sales at which net operating incomewould be equal regardless of whether Marston Corporation sellsthrough agents (at a 18% commission rate) or employs its own salesforce.(Round the CM ratio to 2 decimal places. Enter youranswers in whole dollars and not in thousands.)
Marston Corporation manufactures disposable thermometers thatare sold to hospitals through a network of independent sales agentslocated in the United States and Canada. These sales agents sell avariety of products to hospitals in addition to Marston'sdisposable thermometer. The sales agents are currently paid an 16%commission on sales, and this commission rate was used whenMarston's management prepared the following budgeted absorptionincome statement for the upcoming year. |
| Marston Corporation Budgeted Income Statement | |||||||||||
| Sales | $ | 33,000,000 | |||||||||
| Cost of goodssold: | |||||||||||
| Variable | $ | 17,100,000 | |||||||||
| Fixed | 2,790,000 | 19,890,000 | |||||||||
| Gross margin | 13,110,000 | ||||||||||
| Selling andadministrative expenses: | |||||||||||
| Commissions | 5,280,000 | ||||||||||
| Fixed advertising expense | 720,000 | ||||||||||
| Fixed administrativeexpense | 3,100,000 | 9,100,000 | |||||||||
| Net operatingincome | $ | 4,010,000 | |||||||||
Since the completion of the abovestatement, Marstonâs management has learned that the independentsales agents are demanding an increase in the commission rate to18% of sales for the upcoming year. This would be the thirdincrease in commissions demanded by the independent sales agents infive years. As a result, Marstonâs management has decided toinvestigate the possibility of hiring its own sales staff toreplace the independent sales agents. |
Marston's controller estimatesthat the company will have to hire eight salespeople to cover thecurrent market area, and the total annual payroll cost of theseemployees will be about $690,000, including fringe benefits. Thesalespeople will also be paid commissions of 10% of sales. Traveland entertainment expenses are expected to total about $330,000 forthe year. The company will also have to hire a sales manager andsupport staff whose salaries and fringe benefits will come to$180,000 per year. To make up for the promotions that theindependent sales agents had been running on behalf of Marston,management believes that the companyâs budget for fixed advertisingexpenses should be increased by $420,000. |
| Required: | |
| 1. | Assuming sales of $33,000,000,construct a budgeted contribution format income statement for theupcoming year for each of the following alternatives (Enteryour answers in thousands of dollars (i.e., 15,000,000 should beentered as 15,000.)): |
| a. | The independent sales agents' commission rate remains unchangedat 16%. |
| b. | The independent sales agents' commission rate increases to18%. |
| c. | The company employs its own sales force. |
| 2. | Calculate Marston Corporation'sbreak-even point in sales dollars for the upcoming year assumingthe following: (Round the CM ratio to 2 decimal places.Enter your answers in whole dollars and not inthousands.) |
| a. | The independent sales agents'commission rate remains unchanged at 16%. |
| b. | The independent sales agents' commission rate increases to18%. |
| c. | The company employs its ownsales force. |
| 3. | Refer to your answer to (1)(b) above. If the company employs itsown sales force, what volume of sales would be necessary togenerate the net operating income the company would realize ifsales are $33,000,000 and the company continues to sell throughagents (at a 18% commission rate)? (Round the CM ratio to 2decimal places. Enter your answers in whole dollars and not inthousands.) |
| 4. | Determine the volume of sales at which net operating incomewould be equal regardless of whether Marston Corporation sellsthrough agents (at a 18% commission rate) or employs its own salesforce.(Round the CM ratio to 2 decimal places. Enter youranswers in whole dollars and not in thousands.) |
Related questions
Marston Corporation manufactures disposable thermometers thatare sold to hospitals through a network of independent sales agentslocated in the United States and Canada. These sales agents sell avariety of products to hospitals in addition to Marston'sdisposable thermometer. The sales agents are currently paid an 16%commission on sales, and this commission rate was used whenMarston's management prepared the following budgeted absorptionincome statement for the upcoming year. |
| Marston Corporation Budgeted Income Statement | |||||||||||
| Sales | $ | 33,000,000 | |||||||||
| Cost of goodssold: | |||||||||||
| Variable | $ | 17,100,000 | |||||||||
| Fixed | 2,790,000 | 19,890,000 | |||||||||
| Gross margin | 13,110,000 | ||||||||||
| Selling andadministrative expenses: | |||||||||||
| Commissions | 5,280,000 | ||||||||||
| Fixed advertising expense | 720,000 | ||||||||||
| Fixed administrativeexpense | 3,100,000 | 9,100,000 | |||||||||
| Net operatingincome | $ | 4,010,000 | |||||||||
Since the completion of the abovestatement, Marstonâs management has learned that the independentsales agents are demanding an increase in the commission rate to18% of sales for the upcoming year. This would be the thirdincrease in commissions demanded by the independent sales agents infive years. As a result, Marstonâs management has decided toinvestigate the possibility of hiring its own sales staff toreplace the independent sales agents. |
Marston's controller estimatesthat the company will have to hire eight salespeople to cover thecurrent market area, and the total annual payroll cost of theseemployees will be about $690,000, including fringe benefits. Thesalespeople will also be paid commissions of 10% of sales. Traveland entertainment expenses are expected to total about $330,000 forthe year. The company will also have to hire a sales manager andsupport staff whose salaries and fringe benefits will come to$180,000 per year. To make up for the promotions that theindependent sales agents had been running on behalf of Marston,management believes that the companyâs budget for fixed advertisingexpenses should be increased by $420,000. |
| Required: | |
| 1. | Assuming sales of $33,000,000,construct a budgeted contribution format income statement for theupcoming year for each of the following alternatives (Enteryour answers in thousands of dollars (i.e., 15,000,000 should beentered as 15,000.)): |
| a. | The independent sales agents' commission rate remains unchangedat 16%. |
| b. | The independent sales agents' commission rate increases to18%. |
| c. | The company employs its own sales force. |
| 2. | Calculate Marston Corporation'sbreak-even point in sales dollars for the upcoming year assumingthe following: (Round the CM ratio to 2 decimal places.Enter your answers in whole dollars and not inthousands.) |
| a. | The independent sales agents'commission rate remains unchanged at 16%. |
| b. | The independent sales agents' commission rate increases to18%. |
| c. | The company employs its ownsales force. |
| 3. | Refer to your answer to (1)(b) above. If the company employs itsown sales force, what volume of sales would be necessary togenerate the net operating income the company would realize ifsales are $33,000,000 and the company continues to sell throughagents (at a 18% commission rate)? (Round the CM ratio to 2decimal places. Enter your answers in whole dollars and not inthousands.) |
| 4. | Determine the volume of sales at which net operating incomewould be equal regardless of whether Marston Corporation sellsthrough agents (at a 18% commission rate) or employs its own salesforce.(Round the CM ratio to 2 decimal places. Enter youranswers in whole dollars and not in thousands.) |
Marston Corporation manufactures disposable thermometers thatare sold to hospitals through a network of independent sales agentslocated in the United States and Canada. These sales agents sell avariety of products to hospitals in addition to Marston'sdisposable thermometer. The sales agents are currently paid an 18%commission on sales, and this commission rate was used whenMarston's management prepared the following budgeted absorptionincome statement for the upcoming year.
| Marston Corporation Budgeted Income Statement | |||||||||||
| Sales | $ | 31,000,000 | |||||||||
| Costof goods sold: | |||||||||||
| Variable | $ | 17,200,000 | |||||||||
| Fixed | 2,750,000 | 19,950,000 | |||||||||
| Gross margin | 11,050,000 | ||||||||||
| Selling and administrative expenses: | |||||||||||
| Commissions | 5,580,000 | ||||||||||
| Fixed advertising expense | 790,000 | ||||||||||
| Fixed administrativeexpense | 2,700,000 | 9,070,000 | |||||||||
| Netoperating income | $ | 1,980,000 | |||||||||
Since the completion of the abovestatement, Marstonâs management has learned that the independentsales agents are demanding an increase in the commission rate to20% of sales for the upcoming year. This would be the thirdincrease in commissions demanded by the independent sales agents infive years. As a result, Marstonâs management has decided toinvestigate the possibility of hiring its own sales staff toreplace the independent sales agents. |
Marston's controller estimatesthat the company will have to hire eight salespeople to cover thecurrent market area, and the total annual payroll cost of theseemployees will be about $630,000, including fringe benefits. Thesalespeople will also be paid commissions of 10% of sales. Traveland entertainment expenses are expected to total about $360,000 forthe year. The company will also have to hire a sales manager andsupport staff whose salaries and fringe benefits will come to$190,000 per year. To make up for the promotions that theindependent sales agents had been running on behalf of Marston,management believes that the companyâs budget for fixed advertisingexpenses should be increased by $470,000.
| 2. | CalculateMarston Corporation's break-even point in sales dollars for theupcoming year assuming the following: (Round the CM ratioto 2 decimal places. Enter your answers in whole dollars and not inthousands.) |
| a. | The independentsales agents' commission rate remains unchanged at 18%. |
| b. | The independent sales agents' commission rate increases to20%. |
| c. | The companyemploys its own sales force. |
| 3. | Refer to your answer to (1)(b) above. If the company employs itsown sales force, what volume of sales would be necessary togenerate the net operating income the company would realize ifsales are $31,000,000 and the company continues to sell throughagents (at a 20% commission rate)? (Round the CM ratio to 2decimal places. Enter your answers in whole dollars and not inthousands.) |
| 4. | Determine the volume of sales at which net operating incomewould be equal regardless of whether Marston Corporation sellsthrough agents (at a 20% commission rate) or employs its own salesforce. (Round the CM ratio to 2 decimal places. Enter youranswers in whole dollars and not in thousands.) |
Marston Corporation manufactures disposable thermometers thatare sold to hospitals through a network of independent sales agentslocated in the United States and Canada. These sales agents sell avariety of products to hospitals in addition to Marston'sdisposable thermometer. The sales agents are currently paid an 18%commission on sales, and this commission rate was used whenMarston's management prepared the following budgeted absorptionincome statement for the upcoming year.
| Marston Corporation Budgeted Income Statement | |||||||||||
| Sales | $ | 31,000,000 | |||||||||
| Costof goods sold: | |||||||||||
| Variable | $ | 17,200,000 | |||||||||
| Fixed | 2,750,000 | 19,950,000 | |||||||||
| Gross margin | 11,050,000 | ||||||||||
| Selling and administrative expenses: | |||||||||||
| Commissions | 5,580,000 | ||||||||||
| Fixed advertising expense | 790,000 | ||||||||||
| Fixed administrativeexpense | 2,700,000 | 9,070,000 | |||||||||
| Netoperating income | $ | 1,980,000 | |||||||||
Since the completion of the abovestatement, Marstonâs management has learned that the independentsales agents are demanding an increase in the commission rate to20% of sales for the upcoming year. This would be the thirdincrease in commissions demanded by the independent sales agents infive years. As a result, Marstonâs management has decided toinvestigate the possibility of hiring its own sales staff toreplace the independent sales agents. |
Marston's controller estimatesthat the company will have to hire eight salespeople to cover thecurrent market area, and the total annual payroll cost of theseemployees will be about $630,000, including fringe benefits. Thesalespeople will also be paid commissions of 10% of sales. Traveland entertainment expenses are expected to total about $360,000 forthe year. The company will also have to hire a sales manager andsupport staff whose salaries and fringe benefits will come to$190,000 per year. To make up for the promotions that theindependent sales agents had been running on behalf of Marston,management believes that the companyâs budget for fixed advertisingexpenses should be increased by $470,000. |
| Required: | |
| 1. | Assuming salesof $31,000,000, construct a budgeted contribution format incomestatement for the upcoming year for each of the followingalternatives (Enter your answers in thousands of dollars(i.e., 15,000,000 should be entered as 15,000.)): |
| a. | The independent sales agents' commission rate remains unchangedat 18%. |
| b. | The independent sales agents' commission rate increases to20%. |
| c. | The company employs its own sales force. |
| 2. | CalculateMarston Corporation's break-even point in sales dollars for theupcoming year assuming the following: (Round the CM ratioto 2 decimal places. Enter your answers in whole dollars and not inthousands.) |
| a. | The independentsales agents' commission rate remains unchanged at 18%. |
| b. | The independent sales agents' commission rate increases to20%. |
| c. | The companyemploys its own sales force. |
| 3. | Refer to your answer to (1)(b) above. If the company employs itsown sales force, what volume of sales would be necessary togenerate the net operating income the company would realize ifsales are $31,000,000 and the company continues to sell throughagents (at a 20% commission rate)? (Round the CM ratio to 2decimal places. Enter your answers in whole dollars and not inthousands.) |
| 4. | Determine the volume of sales at which net operating incomewould be equal regardless of whether Marston Corporation sellsthrough agents (at a 20% commission rate) or employs its own salesforce. (Round the CM ratio to 2 decimal places. Enter youranswers in whole dollars and not in thousands.) |
N.B. I only need answer to part 4of the question please
