TRUMP COMPANY_CVP Project

 Accounting 212

CVP Project Data

For the Year Ended 12/31/16

Trump 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 15% of selling price for all items sold.

Dr. Ben Carson, Trump’s controller just prepared the company’s budgeted income statement for next year as following:

   *primarily depreciation on storage facilities.

As Dr. Carson handed the statement to Donald Trump, Trump’s president, he commented “I used the agents’ 15% commission rate in completing the Budgeted Income Statement.  But we’ve just learned that they refuse to handle selling our product next year unless we increase the commission rate to 20%."

Donald replied “How can they possibly defend a 20% commission rate? I say it’s time we fire those guys and get our own sales force.”

Dr. Carson said “We can hire our own sales staff and pay them 10% commission, along with a small salary. Of course, we would have to handle all promotion costs too. We figure our fixed costs would increase by $1,700,000 per year as follows:”

            Sales manager                                    $   200,000

            Salespersons                                           400,000

            Travel and Entertainment                        400,000

            Advertising                                               700,000

                        Total                                        $1,700,000

Required:

Using Excel worksheet, compute Trump’s break-even point in sales dollars for next year assuming:

1.    The agents’ commission rate remains unchanged at 15%

2.    The agents’ commission rate is increased to 20%

3.    The company employs its own sales force