Determine the volume of sales at which net operating income

Assignment Help Managerial Accounting

Reference no: EM133502705

Case: Morocco Corporation manufactures disposable thermometers that are sold to hospitals through a network of independent sales agents located in the United States and Canada. These agents sell a variety of products to hospitals in addition to Morocco's disposable thermometer. The sales agents are currently paid an 18% commission on sales, and this commission rate was used when Morocco's management prepared the following budgeted income statement for the coming year.

Morocco Corporation

Budgeted Income Statement

Sales..................................... $30,000,000

Cost of Goods Sold:

Variable......................... $17,800,000

Fixed............................ 2,400,000 20,200,000

Gross Margin........................... 9,800,000

Selling and Admin. Expenses:

Commissions................... 5,400,000

Fixed Advertising Exp....... 800,000

Fixed Admin. Exp............ 3,200,000 9,400,000

Net Operating Income................. $ 400,000

Since completion of the above statement, Morocco's management has learned that the independent sales agents are demanding an increase in the commission rate to 20% of sales for the upcoming year. This would be the third increase in commissions demanded by the independent sales agents in five years. As a result, Morocco's management has decided to investigate the possibility of hiring its own sales staff to replace the independent sales agents.

Morocco's controller estimates that the company will have to hire eight salespeople to cover the current market area, and the total annual payroll cost of these employees will be about $700,000, including fringe benefits. The salespeople will also be paid commissions of 10% of sales. Travel and entertainment expenses are expected to total about $300,000 for the year. The company will also have to hire a sales manager and support staff whose salaries and fringe benefits will come to about $200,000 per year. To make up for the promotions that the independent sales agents had been running on behalf of Morocco, management believes that the company's budget for fixed advertising expenses should be increased by $500,000.

Question: Determine the volume of sales at which net operating income would be equal regardless of whether Morocco corporation sells through agents (at a 20% commission rate) or employs its own sales force?

Reference no: EM133502705

Questions Cloud

What is the exact asc quote to solve this case : Is Thompson's accounting treatment in accordance with GAAP? What is the exact ASC quote to solve this case

Compute the cost of goods sold to be reported : Compute the cost of goods sold to be reported in the consolidated income statement for 2021 relating to this intra-group sale.

What factors have contributed to your attachment style : What factors have contributed to your attachment style? How does your attachment style influence your faith and your relationship to God?

Difference between mandatory, permissive and illegal subject : Write a paper explaining the difference between mandatory, permissive and illegal subjects of bargaining. Illustrate your conclusions with relevant case law.

Determine the volume of sales at which net operating income : Determine the volume of sales at which net operating income would be equal regardless of whether Morocco corporation sells through agents (at a 20% commission

What adjustments would be necessary as a result of these : Determining the investors share of the associates profits, what adjustments would be necessary as a result of these transactions

How was the success of the program or policy measured : How was the success of the program or policy measured? What data was used to conduct the program or policy evaluation?

Is it worthwhile for eila to sell bird houses : Eila would double the cost per panel used and add 20 minutes of labour time on top (valued at $25 per hour). Is it worthwhile for Eila to sell bird houses

Explain the sources of political socialization : Explain the sources of political socialization. Which agent is more influential in developing political party identity?

User Account

All Pages