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 CorporationBudgeted Income Statement Sales $ 32,000,000 Cost of goods sold:Variable $ 17,300,000 Fixed 2,720,000 20,020,000 Gross margin11,980,000 Selling and administrative expenses: Commissions5,760,000 Fixed advertising expense 760,000 Fixed administrativeexpense 3,400,000 9,920,000 Net operating income $ 2,060,000 Sincethe completion of the above statement, Marstonâs management haslearned that the independent sales agents are demanding an increasein the commission rate to 20% of sales for the upcoming year. Thiswould be the third increase in commissions demanded by theindependent sales agents in five years. As a result, Marstonâsmanagement has decided to investigate the possibility of hiring itsown sales staff to replace the independent sales agents. Marston'scontroller estimates that the company will have to hire eightsalespeople to cover the current market area, and the total annualpayroll cost of these employees will be about $630,000, includingfringe benefits. The salespeople will also be paid commissions of10% of sales. Travel and entertainment expenses are expected tototal about $400,000 for the year. The company will also have tohire a sales manager and support staff whose salaries and fringebenefits will come to $190,000 per year. To make up for thepromotions that the independent sales agents had been running onbehalf of Marston, management believes that the companyâs budgetfor fixed advertising expenses should be increased by $410,000.Required: 1. Assuming sales of $32,000,000, construct a budgetedcontribution format income statement for the upcoming year for eachof the following alternatives (Enter your answers in thousands ofdollars (i.e., 15,000,000 should be entered as 15,000.)): a. Theindependent sales agents' commission rate remains unchanged at 18%.b. The independent sales agents' commission rate increases to 20%.c. The company employs its own sales force. 2. Calculate MarstonCorporation's break-even point in sales dollars for the upcomingyear assuming the following: (Round the CM ratio to 2 decimalplaces. Enter your answers in whole dollars and not in thousands.)a. The independent sales agents' commission rate remains unchangedat 18%. b. The independent sales agents' commission rate increasesto 20%. c. The company employs its own sales force. 3. Refer toyour answer to (1)(b) above. If the company employs its own salesforce, what volume of sales would be necessary to generate the netoperating income the company would realize if sales are $32,000,000and the company continues to sell through agents (at a 20%commission rate)? (Round the CM ratio to 2 decimal places. Enteryour answers in whole dollars and not in thousands.) 4. Determinethe volume of sales at which net operating income would be equalregardless of whether Marston Corporation sells through agents (ata 20% commission rate) or employs its own sales force. (Round theCM ratio to 2 decimal places. Enter your answers in whole dollarsand 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 CorporationBudgeted Income Statement Sales $ 32,000,000 Cost of goods sold:Variable $ 17,300,000 Fixed 2,720,000 20,020,000 Gross margin11,980,000 Selling and administrative expenses: Commissions5,760,000 Fixed advertising expense 760,000 Fixed administrativeexpense 3,400,000 9,920,000 Net operating income $ 2,060,000 Sincethe completion of the above statement, Marstonâs management haslearned that the independent sales agents are demanding an increasein the commission rate to 20% of sales for the upcoming year. Thiswould be the third increase in commissions demanded by theindependent sales agents in five years. As a result, Marstonâsmanagement has decided to investigate the possibility of hiring itsown sales staff to replace the independent sales agents. Marston'scontroller estimates that the company will have to hire eightsalespeople to cover the current market area, and the total annualpayroll cost of these employees will be about $630,000, includingfringe benefits. The salespeople will also be paid commissions of10% of sales. Travel and entertainment expenses are expected tototal about $400,000 for the year. The company will also have tohire a sales manager and support staff whose salaries and fringebenefits will come to $190,000 per year. To make up for thepromotions that the independent sales agents had been running onbehalf of Marston, management believes that the companyâs budgetfor fixed advertising expenses should be increased by $410,000.Required: 1. Assuming sales of $32,000,000, construct a budgetedcontribution format income statement for the upcoming year for eachof the following alternatives (Enter your answers in thousands ofdollars (i.e., 15,000,000 should be entered as 15,000.)): a. Theindependent sales agents' commission rate remains unchanged at 18%.b. The independent sales agents' commission rate increases to 20%.c. The company employs its own sales force. 2. Calculate MarstonCorporation's break-even point in sales dollars for the upcomingyear assuming the following: (Round the CM ratio to 2 decimalplaces. Enter your answers in whole dollars and not in thousands.)a. The independent sales agents' commission rate remains unchangedat 18%. b. The independent sales agents' commission rate increasesto 20%. c. The company employs its own sales force. 3. Refer toyour answer to (1)(b) above. If the company employs its own salesforce, what volume of sales would be necessary to generate the netoperating income the company would realize if sales are $32,000,000and the company continues to sell through agents (at a 20%commission rate)? (Round the CM ratio to 2 decimal places. Enteryour answers in whole dollars and not in thousands.) 4. Determinethe volume of sales at which net operating income would be equalregardless of whether Marston Corporation sells through agents (ata 20% commission rate) or employs its own sales force. (Round theCM ratio to 2 decimal places. Enter your answers in whole dollarsand 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 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.) |
