Determine and prepare Lionels breakeven point

Assignment Help Managerial Accounting
Reference no: EM132472610

Lionel Corporation manufactures pharmaceutical products sold through a network of sales agents in the United States and Canada.

The agents are currently paid an 18% commission on sales; that percentage was used when Lionel prepared the following budgeted income statement for the fiscal year ending June 30, 2019:

Budgeted Income Statement For the Year Ending June 30, ($000 omitted)

2019

 

Sales

Cost of goods sold

 

$29,500

Variable

$13,275

 

Fixed

3,540

16,815

Gross profit

 

$12,685

Selling and administrative costs

 

 

Commissions

$  5,310

 

Fixed advertising cost

885

 

Fixed administrative cost

2,360

8,555

Operating income

 

$    4,130

Fixed interest cost

 

738

Income before income taxes

 

$    3,392

Income taxes (30%)

 

1,018

Net income

 

$    2,374


Point 1: Since the completion of the income statement, Lionel has learned that its sales agents are requiring a 5% increase in their commission rate (to 23%) for the upcoming year. As a result, Lionel's president has decided to investigate the possibility of hiring its own sales staff in place of the network of sales agents and has asked Alan Chen, Lionel's controller, to gather information on the costs associated with this change.

Point 2: Alan estimates that Lionel must hire eight salespeople to cover the current market area, at an average annual payroll cost for each employee of $80,000, including fringe benefits expense. Travel and entertainment expenses is expected to total $700,000 for the year, and the annual cost of hiring a sales manager and sales secretary will be $200,000. In addition to their salaries, the eight salespeople will each earn commissions at the rate of 10% of sales. The president believes that Lionel also should increase its advertising budget by $600,000 if the eight salespeople are hired.

Required

Question 1. Determine Lionel's breakeven point (operating profit = 0) in sales dollars for the fiscal year ending June 30, 2019, if the company hires its own sales force and increases its advertising costs. Prove this by constructing a contribution income statement.

Question 2. If Lionel continues to sell through its network of sales agents and pays the higher commission rate, determine the estimated volume in sales dollars that would be required to generate the operating profit as projected in the budgeted income statement.

Reference no: EM132472610

Questions Cloud

What general entries can be recorded for all transaction : Determine What general entries can be recorded for all transaction? Bought a truck costing $50,000, making a down payment of $7,000.
How is calculated in the net employment income : How is calculated in the net employment income? As a reward for winning the company's Employee Of The Month award, he received an expense paid weekend
Find the probability that Jack passes Calculus III : Suppose that Jack passes Calculus I. Find the probability that Jack passes Calculus III. Find the probability that Jack passes Calculus II and Calculus III
Compute for each year the accounts receivable turnover : Compute for each year the accounts receivable turnover. At the end of 2015, accounts receivable was $480,000. (Round answers to 1 decimal place)
Determine and prepare Lionels breakeven point : Determine and prepare Lionel's breakeven point (operating profit = 0) in sales dollars for the fiscal year ending June 30, 2019, if the company hires
Support effective project management : Appreciate and apply appropriate techniques, tools and knowledge to support effective project management, research and advanced scholarship
Determine the classification for direct materials : Determine the classification for direct materials, direct labour; direct expenses; indirect production overhead; research and development costs
Present a strategy to make labor relations effective : Evaluate the steps the organization took to reshape the labor relations structure into a successful and productive one.
Compare and contrast the AICPA standards : Compare and contrast the AICPA (GAAS) standards with the revised PCAOB standards including at least 5 similarities and 5 differences

Reviews

Write a Review

Managerial Accounting Questions & Answers

  Manage budgets and financial plans

Explain the budgeting process and its importance to a business, identifying the components of different budgets, forecast estimates for inclusion in the budgets.

  Prepare a retained earnings statement

Prepare a retained earnings statement for the year and Prepare a stockholders' equity section of given case.

  Prepare a master budget for the three-month period

Prepare a master budget for the three-month period.

  Construct the companys direct labor budget

Construct the company's direct labor budget for the upcoming fiscal year, assuming that the direct labor workforce is adjusted each quarter to match the number of hours required to produce the forecasted number of units produced.

  Evaluate the predetermined overhead rate

Evaluate the Predetermined Overhead Rate

  Determine the company''s bid

Determine the company's bid if activity-based costing is used and the bid is based upon full manufacturing cost plus 30 percent.

  Compute the pool rates for the different activities

Complete the schedule to compute the pool rates for the different activities.

  Prepare Company financial statements

Prepare Company financial statements

  Prepare an analysis of terracycles

This individual assignment is based on the TerraCycle Inc.

  Discuss the ethical issues

Discuss the ethical issues

  Political resources in emerging markets

Calculate the GDP in Income Approach  and Expenditure Approach

  Management accounting - ehsan electronics company

A new plant accountant suggested that the company may be able to assign support costs to products more accurately by using an activity based costing system that relies on a separate rate for each manufacturing activity that causes support costs.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd