Accounting Mastery

In: Business and Management

Submitted By dbethke
Words 875
Pages 4
Pittman 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 11% of selling price for all items sold. | Barbara Cheney, Pittman’s controller, has just prepared the company’s budgeted income statement for next year. The statement follows: |

Pittman Company
Budgeted Income Statement
For the Year Ended December 31 | Sales | | $16,130,000 | Manufacturing costs: | | | Variable | $7,200,000 | | Fixed overhead | -------------------------------------------------
2,180,000 | ------------------------------------------------- 9,380,000 | Gross margin | | 6,750,000 | Selling and administrative costs: | | | Commissions to agents | 1,774,300 | | Fixed marketing costs | 113,000* | | Fixed administrative costs | -------------------------------------------------
1,800,000 | -------------------------------------------------
3,687,300 | Net operating income | | 3,062,700 | Fixed interest cost | | -------------------------------------------------
529,000 | Income before income taxes | | 2,533,700 | Income taxes (40%) | | 1,013,480 | Net income | | -------------------------------------------------
$1,520,220 | |

*Primarily depreciation on storage facilities. | | As Barbara handed the statement to Karl Vecci, Pittman’s president, she commented, “I went ahead and used the agents’ 11% commission rate in completing these statements, but we’ve just learned that they refuse to handle our products next year unless we increase the commission rate to 16%.” | “That’s the last straw,” Karl replied angrily. “Those agents have been demanding more…...

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