CHAMPLAIN LAKE SPORTING GOODS COMPANY
Budgeted Income Statement
For the Year Ended December 31, 20x4
Sales
Cost of Goods Sold
Gross Margin
$15,000,000
$9,000,000
$6,000,000
Selling and Administrative Expenses:
Commisions
$3,000,000
All other expenses (fixed)
$150,000
Income before taxes
Income tax (30%)
$3,150,000
$2,850,000
$855,000
Net Income
$1,995,000
Module 3
1. Compute Lake Champlain Sporting Goods estimated breakeven point in sales dollars for the year ending December 31, 20x4,
based on the budgeted income statement prepared by the
controller.
Contribution-margin ratio
0.2
Break-even point =
fixed expenses
$750,000 Contribution-margin ratio
$150,000
0.2
Module 3
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.
Fixed Expenses
Previous Expenses
New Salaries
Total Fixed Expenses
New Contribution Margin-Ratio
Gross Margin
Commissions
Contribution Margin-Ratio
Break-Even Point
$150,000
$375,000
$525,000
$6,000,000
$750,000
0.35
$1,500,000
Module Compute 3
3. the estimated volume in sales dollars that would be
required for the year ending Decem-ber 31, 20x4, to yield the same
net income as projected in the budgeted income statement, if management continues to use the independent sales agents and agrees
to their demand for a 25 percent sales commission.
New Contribution Margin-Ratio
Gross Margin
Commissions
$6,000,000
$3,750,000
Contribution Margin-Ratio
Sales volume in dollars required
to earn after-tax net income
0.15
$20,000,000
Module 3
4. Compute the estimated volume in sales dollars that would generate an identical net
income for the year ending December 31, 20x4, regardless of whether Lake Champlain
Sporting Goods Company employs its own sales personnel or continues to use the
independent sales agents and pays them a 25 percent commission.
x=volume of sales
solve variable/fixed cost equation
0.35*x-525000=0.15*x-150000
0.2*x=375000
Identical net income amount
$1,875,000