15 May DETERMINE THE VOLUME OF SALES THAT WOULD BE REQUIRED TO GENERATE THE SAME NET INCOME AS CONTAINED IN THE BUDGETED INCOME STATEMENT FOR NEXT YEAR.
Compute pittman company’s break-even point in dollar sales for next year assuming:
- the agents’ commission rate remains unchanged at 15%
- the agents’ commission rate is increased to 20%.
- the company employs its own sales force
2.) assume that pittman company decided to continue selling through agents and pays the 20% commission rate. Determine the volume of sales that would be required to generate the same net income as contained in the budgeted income statement for next year.
3.)Determine the volume of sales at which net income would be equal regardless of whether pittman company sells through agents (at 20% commission rate) or employs its own sales force.
4.) Compute the degree of operating leverage that the company would expect to have on December 31 at the end of next year assuming:
- the agents’ commission rate remains unchanged at 15%
- the agents’ commission rate is increased at 20%
- the company employs its own sales force
-use income BEFORE income taxes in your operating leverage computation
5.) Based on the data in (1) through (4) above, make a recommendation as to whether the company should continue to use sales agents (at 20% commission rate) or employ its own sales force. Give reasons for your answer
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