TRUMP COMPANY_CVP Project

 Accounting 212

CVP Project Data

For the Year Ended 12/31/16

 

Trump 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 commission of 15% of selling price for all items sold.

Dr. Ben Carson, Trump’s controller just prepared the company’s budgeted income statement for next year as following:

 

 

TRUMP COMPANY

BUDGETED INCOME STATEMENT

FOR THE YEAR ENDED DECEMBER 31, 2016

 

 

 

SALES

 

$16,000,000

MANUFACTURING COSTS:

 

 

  VARIABLE

$7,200,000

 

  FIXED

  2,340,000

 9,540,000

GROSS MARGIN

 

 6,460,000

SELLING & ADMIN COSTS:

 

 

  COMMISSION TO AGENTS

2,400,000

 

  FIXED MARKETING COSTS

   120,000*

 

  FIXED ADMIN COSTS

1,800,000

 4,320,000

NET OPERATING INCOME

 

 2,140,000

 

 

 

   *primarily depreciation on storage facilities.

 

As Dr. Carson handed the statement to Donald Trump, Trump’s president, he commented “I used the agents’ 15% commission rate in completing the Budgeted Income Statement.  But we’ve just learned that they refuse to handle selling our product next year unless we increase the commission rate to 20%."

Donald replied “How can they possibly defend a 20% commission rate? I say it’s time we fire those guys and get our own sales force.”

Dr. Carson said “We can hire our own sales staff and pay them 10% commission, along with a small salary. Of course, we would have to handle all promotion costs too. We figure our fixed costs would increase by $1,700,000 per year as follows:”

 

 

           

            Sales manager                                    $   200,000

            Salespersons                                           400,000

            Travel and Entertainment                        400,000

            Advertising                                               700,000

                        Total                                        $1,700,000

 

 

 

 

 

           

 

                       

Required:

           

Using Excel worksheet, compute Trump’s break-even point in sales dollars for next year assuming:

1.    The agents’ commission rate remains unchanged at 15%

2.    The agents’ commission rate is increased to 20%

 

3.    The company employs its own sales force

    • Posted: 3 years ago
    TRUMP COMPANY_CVP Project

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