Reference no: EM131332449

Accounting Assignment

Project Data

Noble 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 12% of selling price for all items sold.

Randy, Noble's controller just prepared the company's budgeted income statement for next year as following:

NOBLE 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	1,920,000
FIXED MARKETING COSTS	120,000*
FIXED ADMIN COSTS	1,800,000	3,840,000
NET OPERATING INCOME		2,620,000

*primarily depreciation on storage facilities.

As Randy handed the statement to Mr. Noble, Noble Company's president, he commented "I used the agents' 12% 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 18%."

Mr. Noble replied "How can they possibly defend an 18% commission rate? I say it's time we fire those guys and get our own sales force."

Randy said "We can hire our own sales staff and pay them 8% 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 $1,500,000 per year as follows:"

Sales manager	$ 200,000
Salespersons	400,000
Travel and Entertainment	200,000
Advertising	700,000
Total	$1,500,000

Required:

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

1. The agents' commission rate remains unchanged at 12%
2. The agents' commission rate is increased to 18%
3. The company employs its own sales force with 8% commission and $1,500,000 additional fixed cost.