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Company, a wholesale supply company, engages independent sales agents to market the company lines. These agents currently receive a commission of 20% of sales, but they are demanding an increase to 25% of sales made during the year ending December 31, 2012. The company had already prepared its 2012 budget before learning of the agents' demand for an increase in commission. The pro forma income statement below is based on this budget:

Malta Company

Pro-Forma Income Statement

For The Year Ending December 31,2012

Sales

P10,000,000

Cost of goods sold

6,000,000

Gross profit

4,000,000

Selling and administrative expenses:

Commissions

P2,000,000

All other costs (fixed)

100,000

2,100,000

Income before income tax

1,900,000

Income tax (30%)

570,000

Profit (loss)

P1,330,000

The company is considering the possibility of employing its own salespersons. Three individualswould be required, at an estimated annual salary of P30,000 each, plus commissions of 5% of sales. In addition, a sales manager would be employed at a fixed annual salary of P160,000. All other fixed costs, as well as the variable cost percentages, would remain the same as the estimates in the 2012 pro-forma income statement.

Required:

1.Compute the company's estimated breakeven point in sales peso for the year ending December 31, 2012, based on the pro forma income statement prepared by the company.

2.Compute the company's estimated breakeven point in sales pesos for the year ending December 31, 2012, if the company employs its own salespersons.

3.For the year ending December 31, 2012, compute in sales pesos the estimated volume required to yield the same net income as projected in the pro forma income statement, if the company continues to use the independent sales agents and agrees to their demand for a 25% sales commission.

4.For the year ending December 31,2012, compute the estimated volume in sales pesos that will generate net income that is identical whether the company employs its own salespersons or continues to use the independent sales agents and pays them a 25% commission.

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