Case Lake

In: Business and Management

Submitted By thesanee
Words 375
Pages 2
CASE – Lake Champlain Sporting Goods Company, a wholesale supply company, engages independent sales agents to market the company’s products throughout New York and Ontario. These agents currently receive a commission of 20% of sales, but they are demanding an increase to 25% of sales made during the year ending December 31, 20X4 budget before learning of the agent’s demand for an increase in commissions.

The budgeted 20x4 income statement is shown below. Assume that cost of goods sold is 100% variable cost.

Budgeted Income Statement
For the Year Ended December 31, 20x4

Sales $15,000,000
Cost of good sold 9,000,000

Gross margin $6,000,000
Selling and Administrative Expenses: Commissions $3,000,000 All other expenses (fixed) 150,000 3,150,000

Income before taxes $2,850,000

Income Tax (30%) 855,000

Net Income $1,955,000

The company’s management is considering the possibility of employing full-time sales personnel. Three individuals would be required, at an estimated salary of $45,000 each, plus commissions of 5% of sales. In addition, two sales managers would be employed at fixed annual salaries of $120,000 each. All other fixed costs, as well as the variable cost percentages, would remain the same as the estimates in the 20x4 budgeted income statement.
1. Compute Lake Champlain Sporting Goods’ estimated break-even point in sales dollars for the year ending December 31, 20x4, based on the budgeted income statement prepared by the controller. 2. Compute the estimated break-even point in sales dollars for the year ending December 31, 20x4, if the company employs its own sales personnel. 3. Compute the estimated volume in sales dollars that would be required for the year ending December 31,…...

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