{"id":23214,"date":"2022-01-06T03:57:55","date_gmt":"2022-01-06T03:57:55","guid":{"rendered":"https:\/\/assignmenttutors.net\/blog\/pittman-company-is-a-small-but-growing-manufacturer-of\/"},"modified":"2022-01-06T03:57:55","modified_gmt":"2022-01-06T03:57:55","slug":"pittman-company-is-a-small-but-growing-manufacturer-of","status":"publish","type":"post","link":"https:\/\/assignmenttutors.net\/blog\/pittman-company-is-a-small-but-growing-manufacturer-of\/","title":{"rendered":"Pittman company is a small but growing manufacturer of"},"content":{"rendered":"
\n

Pittman 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 markets its products. These agents are paid a sales commission of 15% for all items sold. Barbara Cheney, Pittman’s controller, has just prepared the company’s budgeted income statement for next year. The statement follows: <\/span>\u00a0\u00a0<\/span>\u00a0\u00a0<\/span><\/p>\n

Sales……………………………………$16,000,000 <\/span>\u00a0\u00a0<\/span>\u00a0\u00a0<\/span><\/p>\n

Manufacturing expenses: <\/span>\u00a0\u00a0<\/span>\u00a0\u00a0<\/span><\/p>\n

variable………………..$7,200,000 <\/span>\u00a0\u00a0<\/span>\u00a0\u00a0<\/span><\/p>\n

fixed overhead………..2,340,000………..$9,540,000 <\/span>\u00a0\u00a0<\/span>\u00a0\u00a0<\/span><\/p>\n

Gross Margin………………………………….6,460,000 <\/span>\u00a0\u00a0<\/span>\u00a0\u00a0<\/span><\/p>\n

Selling and Admin expenses <\/span>\u00a0\u00a0<\/span>\u00a0\u00a0<\/span><\/p>\n

commissions to agents…2,400,000 <\/span>\u00a0\u00a0<\/span>\u00a0\u00a0<\/span><\/p>\n

fixed marketing expenses..120,00 <\/span>\u00a0\u00a0<\/span>\u00a0\u00a0<\/span><\/p>\n

Fixed admin expenses……..1,800,000……4,320,000 <\/span>\u00a0\u00a0<\/span>\u00a0\u00a0<\/span><\/p>\n

Net operating income…………………………2,140,000 <\/span>\u00a0\u00a0<\/span>\u00a0\u00a0<\/span><\/p>\n

Fixed interest expenses……………………….540,000 <\/span>\u00a0\u00a0<\/span>\u00a0\u00a0<\/span><\/p>\n

Income before income taxes………………….1,600,000 <\/span>\u00a0\u00a0<\/span>\u00a0\u00a0<\/span><\/p>\n

incomes taxes (30%)…………………………..480,000 <\/span>\u00a0\u00a0<\/span>\u00a0\u00a0<\/span><\/p>\n

Net income……………………………………….1,120,000 <\/span>\u00a0\u00a0<\/span>\u00a0\u00a0<\/span><\/p>\n

\u00a0\u00a0\u00a0\u00a0\u00a0<\/span><\/p>\n

This statement was made using agents 15% commission rate, but next year will increase to 20%. Several companies they know about pay a 7.5% commission to their own salespeople, along with a small salary. Of course, they have to handle promotional cost, too. They figure their fixed expenses would increase by $2,400,000 per year, but that would be more than offset by the $3,200,000 (20% X $16,000,000) that they would avoid on agents’ commissions. <\/span>\u00a0\u00a0<\/span>\u00a0\u00a0<\/span><\/p>\n

\u00a0\u00a0\u00a0\u00a0\u00a0<\/span><\/p>\n

The break down of the $2,400,000 cost follows: <\/span>\u00a0\u00a0<\/span>\u00a0\u00a0<\/span><\/p>\n

Salaries <\/span>\u00a0\u00a0<\/span>\u00a0\u00a0<\/span><\/p>\n

Sales manager………………..$100,000 <\/span>\u00a0\u00a0<\/span>\u00a0\u00a0<\/span><\/p>\n

Salespersons…………………..600,000 <\/span>\u00a0\u00a0<\/span>\u00a0\u00a0<\/span><\/p>\n

Travel and entertainment……..400,000 <\/span>\u00a0\u00a0<\/span>\u00a0\u00a0<\/span><\/p>\n

Advertising……………………….1,300,000 <\/span>\u00a0\u00a0<\/span>\u00a0\u00a0<\/span><\/p>\n

Total………………………………..$2,400,000 <\/span>\u00a0\u00a0<\/span>\u00a0\u00a0<\/span><\/p>\n

\u00a0\u00a0\u00a0\u00a0\u00a0<\/span><\/p>\n

They save $75,000 a year because that’s what they are having to pay the auditing firm now to check out the agents’ reports. So administration expenses would be less. <\/span>\u00a0\u00a0<\/span>\u00a0\u00a0<\/span><\/p>\n

\u00a0\u00a0\u00a0\u00a0\u00a0<\/span><\/p>\n

1.) Compute pittman company’s break-even point in dollar sales for next year assuming: <\/span>\u00a0\u00a0<\/span>\u00a0\u00a0<\/span><\/p>\n

a. the agents’ commission rate remains unchanged at 15% <\/span>\u00a0\u00a0<\/span>\u00a0\u00a0<\/span><\/p>\n

b. the agents’ commission rate is increased to 20%. <\/span>\u00a0\u00a0<\/span>\u00a0\u00a0<\/span><\/p>\n

c. the company employs its own sales force <\/span>\u00a0\u00a0<\/span>\u00a0\u00a0<\/span><\/p>\n

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. <\/span>\u00a0\u00a0<\/span>\u00a0\u00a0<\/span><\/p>\n

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. <\/span>\u00a0\u00a0<\/span>\u00a0\u00a0<\/span><\/p>\n

4.) Compute the degree of operating leverage that the company would expect to have on December 31 at the end of next year assuming: <\/span>\u00a0\u00a0<\/span>\u00a0\u00a0<\/span><\/p>\n

a. the agents’ commission rate remains unchanged at 15% <\/span>\u00a0\u00a0<\/span>\u00a0\u00a0<\/span><\/p>\n

b. the agents’ commission rate is increased at 20% <\/span>\u00a0\u00a0<\/span>\u00a0\u00a0<\/span><\/p>\n

c. the company employs its own sales force <\/span>\u00a0\u00a0<\/span>\u00a0\u00a0<\/span><\/p>\n

-use income BEFORE income taxes in your operating leverage computation <\/span>\u00a0\u00a0<\/span>\u00a0\u00a0<\/span><\/p>\n

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 <\/span>\u00a0\u00a0<\/span>\u00a0\u00a0<\/span><\/p>\n

\u00a0<\/p>\n

\u00a0<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

Pittman 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 markets its products. These agents are paid a sales commission of 15% for all items sold. Barbara Cheney, Pittman’s controller, has just prepared the company’s budgeted […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[16],"tags":[],"class_list":["post-23214","post","type-post","status-publish","format-standard","hentry","category-education"],"_links":{"self":[{"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/posts\/23214","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/comments?post=23214"}],"version-history":[{"count":0,"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/posts\/23214\/revisions"}],"wp:attachment":[{"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/media?parent=23214"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/categories?post=23214"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/tags?post=23214"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}