Seco Corp., a wholesale supply company,

Seco Corp., a wholesale supply company,

2.         Seco Corp., a wholesale supply company, uses independent sales agents to market the company’s products. These agents currently receive a commission of 20% of sales, but are demanding an increase to 25% of sales. Seco had already prepared its budget for next year before learning of the sales agents’ demand for an increase in commissions. That budgeted income statement appears below:

SECO CORP.

Budgeted Income Statement

Sales

$10,000,000

Cost of sales

    6,000,000

Gross margin

4,000,000

Selling and administrative expenses:

Commissions

$2,000,000

All other expenses (fixed)

     100,000

    2,100,000

Net income

$  1,900,000

Seco is considering the possibility of employing its own salespersons. Three individuals would be required, at a salary of $30,000 each, plus commissions of 5% of sales. In addition, a sales manager would be employed at a fixed annual salary of $160,000.

Required: (25 points)

Compute Seco’s break-even point in sales dollars based upon the company’s budgeted income statement, assuming that the company continues to use independent sales agents and that they are paid the old commission rate of 20% of sales.

b.   Compute Seco’s break-even point in sales dollars, assuming that the company employs its own salespersons.