case study 333 - CASE 3-33 Cost Structure Break-Even and Target Profit Analysis[LO34 LO35 LO36 Pittman Company is a small but growing manufacturer of

case study 333 - CASE 3-33 Cost Structure Break-Even and...

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CASE 3-33 Cost Structure; Break-Even and Target Profit Analysis [LO3–4, LO3–5, LO3–6] 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 sales commission of 15% 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. . . . . . . . . . . . . . . . . . . $16,000,000 Manufacturing expenses: Variable. . . . . . . . . . . . . . . . . . . . . $7,200,000 Fixed overhead. . . . . . . . . . . . . . . 2,340,000 9,540,000 Gross margin. . . . . . . . . . . . . . . . . 6,460,000 Selling and administrative expenses: Commissions to agents. . . . . . . . . . . . . . . 2,400,000 Fixed marketing expenses. . . . . . . . . . . . 1,20,000 * Fixed administrative expenses. . . . . . . 1,800,000 4,320,000 Net operating income . . . . . . . . . . . . . . 2,140,000
Pittman Company Budgeted Income Statement For the Year Ended December 31 Fixed interest expenses . . . . . . . . . . . 540,000 Income before income taxes. . . . . . . . . . 1,600,000 Income taxes (30%). . . . . . . . . . . . . . . . . 480,000 Net income. . . . . . . . . . . . . . . . . . . . . . $ 1,120,000 Primarily depreciation on storage facilities

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