Marston Corporation

Budgeted Income Statement

1a)
$ 30,000,000.00

Sales
Variable Costs

Costs of Goods Sold

Commissions

$
$

17,400,000.00
5,400,000.00 $ 22,800,000.00
$ 7,200,000.00

$
$
$

2,800,000.00
800,000.00
3,200,000.00 $ 6,800,000.00
$
400,000.00

Contribution Margin
Fixed Costs

Fixed Costs of Goods Sold

Fixed adverting expense
Fixed administrative expense
Net operating income

1b)
$ 30,000,000.00

Sales
Variable Costs

Costs of Goods Sold

Commissions

$
$

Contribution Margin
Fixed Costs

Fixed Costs of Goods Sold

Fixed adverting expense
Fixed administrative expense

$
$
$

Net operating income

17,400,000.00
6,000,000.00 $ 23,400,000.00
$ 6,600,000.00
2,800,000.00
800,000.00
3,200,000.00 $ 6,800,000.00
$ (200,000.00)

1c)
$ 30,000,000.00

Sales
Variable Costs

Variable
Commissions

$
$

17,400,000.00
3,000,000.00 $ 20,400,000.00
$ 9,600,000.00

$
$
$
$
$
$

2,800,000.00
700,000.00
200,000.00
400,000.00
1,300,000.00
3,200,000.00 $ 8,600,000.00
$ 1,000,000.00

Contribution Margin
Fixed Costs

Fixed Costs of Goods Sold

Wages and fringe benefit
Salaried expense
Entertaining expense
Fixed adverting expense
Fixed administrative expense
Net operating income

2a)

Break-Even Point

6,800,000.00
0.24

28,333,333.33

2b)
Break-Even Point

6,800,000.00
0.22

30,909,090.91

2c)
Break-Even Point

8,600,000.00
0.32

26,875,000.00

(8,600,000-200,000)
0.32

26,250,000.00

.32x-8,600,000
.1x

=
=

.22x-6,800,000
$
1,800,000.00

3)
Volume of sales needed to
generate net operating income of 4)
Volume of sales where net
operating income is equal

If income is greater than $1,800,000, then they should use their own sales force.
If income is less than $1,800,000, then they should use independent sales agents at the 20%
commission rate.
x
Sales
$
$

y
Costs
$
30,000,000.00 $

x
Sales
6,800,000.00 $
30,200,000.00 $ 30,000,000.00

y
Costs
$
8,600,000.00
$ 29,000,000.00

y=.32x-8600000
y=.22x-6800000
5)
y=.32x-8600000
y=.22x-6800000

y
0
10000000
20000000
30000000
40000000
50000000

-8600000
-5400000
-2200000
1000000
4200000
7400000
y

0
10000000
20000000
30000000
40000000
50000000

-6800000
-4600000
-2400000
-200000
2000000
4200000

10000000
8000000
6000000

Expenses

4000000
2000000
Option C

0
0

10000000 20000000 30000000 40000000 50000000 60000000

-2000000
-4000000
-6000000
-8000000
-10000000

Sales

Option B