Instructions Case analysis will be delivered typed (word or xl) within 2 weeks time from the dote assigned. To get the full points you must provide the correct solutions and your answers should be supported by the relevant theory, methodology, or formulas, as taught during the course and described in your textbook. Likewise you must make sure you use the appropriate structure and formats of financial statements and schedules (i.e. income Statements, budgets, etc) that are included in your answers. (100 points)
Case Data Kosmos Med Company is a manufacturer of medical equipment that is growing rapidly. As it seeks global expansion it doesn’t have any sales force of its own, bup.elies on independent sales agents to market their products. These agents are paid on commission,on all items sold. Judy, the company’s chief accountant has prepared the budgeted income statement for next year
Kosmos Med Company Budgeted Income Statement, Dec.311` (in C) Sales 160.000.00 Manufacturing expenses Variable 7.200.000 Fixed 2.340.000 Gross Margin 6.460.000 Selling & administrative expenses Commissions to agents 2.400 000 Fixed marketing expenses 120.000* Fixed administrative expenses 1.800.000 Net operating income 2.140.000 Fixed interest expenses 540.000 Income before income taxes 1.600.000 Income taxes 30% 480.000 Net Income C 1.120.000 •Primarily depreciation on storage facilities
When Judy handed the Income statement to Alan, her boss, she commented that she used the 15% rate for the sales agents commission but she learned that the agents were aiming for an increase in the commission rate to 20% for next year. Alan got very upset and angrily responded: “This is gone too far. How can they defend a 20% commission rate?” “They claim that their profit is very small, after paying for advertising, travel and other promotion expenses”, replied Judy. Alan was thinking about their global expansion and believed that setting up their own sales force and replacing the agents was the right thing to do, so he asked Judy to prepare a report showing how this would affect their costs The next morning Judy came back with some interesting findings. “Based on my research some companies pay 7,S% commission to their salespeople, along with a small salary Of course, w2moulcL______ have to handle all promotion costs, too We figure out our fixed expenses would increase by(C 2 400 000)
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