# 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

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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