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Morocco Corporation Budgeted Income Statement Sales. 30,000,000 Cost of Goods Sold: Fixed 17,900,000 Gross Margin. Selling and Admin. Expenses: 9,800,000 5,400,000 800,000 3,200,000 9,400,000 400,000 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 600,000 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. Required: 1. (4 points) Assuming sales of 30,000,000, construct a budgeted contribution margin format income statement for the upcoming year with the following alternatives: a. The independent sales agents' commission rate stays the same at 18%. b. The independent sales agents' commission rate increases to 20%. c. The company employs its own sales force. 2. (2 points) Calculate Morocco's break-even point in sales dollars next year for each of these alternatives: a. The independent sales agents' commission rate stays the same at 18%. b. The independent sales agents' commission rate increases to 20%. c. The company employs its own sales force. 3. (2 points) Refer to your answer in (1)(b) above. If the company employs its own sales force, what volume of sales would be necessary to generate the same net operating income the company would generate in (1)(b) above? 4. (2 points) 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.
Forten Company's current year Income statement, comparative balance sheets, and additional information follow. For the year, (1) all sales are credit sales, (2) all credits to Accounts Receivable reflect cash receipts from customers, (3) all purchases of inventory are on credit, and (4) all debits to Accounts Payable reflect cash payments for Inventory. Assets Cash 69,400 86,500 Accounts receivable 85,400 63,625 Inventory 295,156 264,800 Prepaid expenses 1,340 2,155 Total current assets 451,296 417,080 Equipment 144,500 121,000 Accumulated depreciation-Equipment (43,125) (52,500) Total assets 52,671 485,580 Liabilities and Equity Accounts payable 66,141 134,175 Long-term notes payable 72,400 70,350 Total liabilities 138,541 204,525 Equity Common stock, 5 par value Paid-in capital in excess of par, common stock 182,250 163,250 Paid-in capital in excess of par, common stock 174,880 117,805 Total liabilities and equity 552,671 485,580 Additional Information on Current Year Transactions a. The loss on the cash sale of equipment was 18,125 (details in b). b. Sold equipment costing 85,875, with accumulated depreciation of 43,125, for 24,625 cash. c. Purchased equipment costing 109,375 by paying 56,000 cash and signing a long-term notes payable for the balance. d. Paid 51,325 cash to reduce the long-term notes payable. e. Issued 3,800 shares of common stock for 20 cash per share. f. Declared and paid cash dividends of 52,700. Required: Prepare a complete statement of cash flows using a spreadsheet using the indirect method.