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Pittman Company

In: Business and Management

Submitted By fbasis
Words 372
Pages 2
1. A. The break-even point is $12,000,000 B. The break-even point is $13,714,286 C.The break-even point is $15,157,895
2 If the company wanted to generate the same net income as contained in the budgeted income statement while paying a commission of 20% they would have to have sales totaling $17,142,857.
Pittman Company
Contribution Income statement
For the month of
Total
Cm Ratio
Sales
$17,142,857
100%
Less: Variable expense
$11,142,857
65%
Contribution margins
$6,000,000
35%
Less: Fixed cost
$4,800,000
Net operating income
$1,200,000
3 If the company wanted to generate the same net income as contained in the budgeted income statement, while paying no commission and hire no sales force, they would have to generate sales of $10,909,091 to generate a profit of $1,200,000.
Pittman Company
Contribution Income statement
For the month of
Total
Cm Ratio
Sales
$10,909,091
100%
Less: Variable expense
$4,909,091
45%
Contribution margins
$6,000,000
55%
Less: Fixed cost
$4,800,000
Net operating income
$1,200,000
4.
A. Operating leverage is 4
B Operating leverage is 7
C. Operating leverage is 19
5 If the company decides to stay the course and continue to pay a commission of 15% this will allow them to operate with the lowest possible break even point. While a 20% commission will put the break-even point at the highest level of the three scenarios. However if the company decides to stay the course they will have a relatively low operating leverage and will need a substantial increase in sales to increase profit. The best choice is for the company to drop the outside sales force and hire an internal sales team. An internal sales team would have a break-even point higher than the status quo but lower than with a 20% increase in sales commission. Also another key selling point for hiring an internal sales team is that operating leverage will significantly increase. There by suggesting that with a slight increase in sales profits would greatly increase and the additional fixed cost would be justified by significantly higher profits.…...

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