If OMS continues to sell through the independent sales agents and pays the higher commission rate (20% instead of 15%), compute the estimated sales dollars that would be required to generate the level of profit as projected in the budgeted income statement. Omega Medical Supplies Pte Ltd (OMS) is a small but growing manufacturer of medicalequipment. Due to its small set-up, the company does not have a sales force of its own, butrelies entirely on independent sales agents to market its products.The independent sales agents are paid a commission of 15% of sales. This is reflected in thebudget for the new financial year ending 31 December 2022, as follows:(S'000)(S'000)16,000SalesCost of goods soldVariableFixed7,2009,5406,4602.340Gross profitSelling, general and administrative expensesAgents' commissionsFixed advertising expensesFixed general and administrative expensesProfit before interest and taxes2,4001201,8004,3202,140Fixed interest expenseProfit before taxes5401,600Тах еxpense272Profit after tax1,328 Subsequent to the approval of the budgets for the year ending 31 December 2022, OMS wasinformed that independent sales agents demanded for an increase in commission rate to 20%for 2022 to cover for advertising, travel and other promotional costs. This effectively renderedthe approved budgets invalid.The founder of OMS, Denzel was indignant that they had to be subjected to the unfoundedrequest by the independent sales agents, and commissioned an urgent study of hiring its ownsales team.After a detailed analysis, the financial controller proposed to engage the company's own salesteam, providing a 7.5% sales commission and a base salary, which is comparable to marketrates. However, the company will have to handle all advertising and promotional activitiesinternally.Under the new proposal, fixed costs would increase by $2,400,000 (see below for details), butthis would be better than having to pay the independent sales agents a commission of$3,200,000 (20% of $16,000,000).($'000)Salaries of sales teamSales managerSales personsTravel and entertainment100600400Advertising and promotion1,3002,400Denzel was very pleased with the proposal, commenting that the $2,400,000 is exactly the sameas what the company would have paid under the 15% commission rate. In addition, there wouldbe additional savings of $75,000 from auditing fees paid to verify the agents' sales reports. Inother words, general and admin expenses will decrease by $75,000. He has asked the financialcontroller to tidy up the proposal quickly and get the new budget approved.

('$000) ('$000) Sales 16000 Cost of Good Sold Variable 7200 Fixed 2340…

Denzel was very pleased with the proposal, commenting that the $2,400,000 1s exactly the same as what the company would have paid under the 15% commission rate. In addition, there would be additional savings of $75,000 from auditing fees paid to verify the agents' sales reports. In other words, general and admin expenses will decrease by $75,000. He has asked the financial controller to tidy up the proposal quickly and get the new budget approved.

Denzel was very pleased with the proposal, commenting that the $2,400,000 1s exactly the same as what the company would have paid under the 15% commission rate. In addition, there would be additional savings of $75,000 from auditing fees paid to verify the agents' sales reports. In other words, general and admin expenses will decrease by $75,000. He has asked the financial controller to tidy up the proposal quickly and get the new budget approved.

Excel Applications for Accounting Principles

4th Edition

ISBN:9781111581565

Author:Gaylord N. Smith

Publisher:Gaylord N. Smith

Chapter18: Cost-volume-profit Analysis (cvp)

Section: Chapter Questions

Problem 1R: Poleski Manufacturing, which maintains the same level of inventory at the end of each year, provided...

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