Question

The ZMH Company has two divisions, Corporate Office Systems and Home Office Systems. You are building the budget for Home Office Systems.

The forecast included 2019 year's sales of $35,000,000. There was a common sales team for both devisions. 35% of the sales team would be dedicated to Home Office Systems. Sales reps for Home Office would earn a 20% commission on sales of Home Office Systems. Home Office Systems would be charged for 35% of the fixed direct costs of the Sales Team managemet. The sales team amaagemet budget for salaries and benefits is $10,000,000.

The advertising and promotion budget included trade managzine advertising, production costs for ads, catalogs, manuals, pop displays, and sales promotion material.

Production costs and media placement costs were budgeted at $500,000.

David Smith's team to run the Home Office Systems was estimated to cost $300,000.

Co-op advertising copywriting and production costs are expected to be at $200,000.

The co-op ad polcy stated that co-op ad allowances to customers would be 7.5% and was expected to be fully used.

Freight expense was expected to be 6% of sales.

Manufacturing estimates that costs to produce the products are estimated to be 45% of sales.

Manufacturing overhead charged to Home Office Systems was expected to be $700,000.

Office management overhead including salaries were expected to be $400,000.

A) Prepare a proforma income statement for the Home Office Systems Division.

B) How much dollar sales will the Home Office Systems Division need to breakeven?

Answer 1

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	Working:
				Total
	Sales		35000000
	Cost of Goods Sold	45% of Sale	15750000		Variable
Marketing Expense				2100000
	Freight	6% of Sale	2100000		Variable
Sales Force Expense				10500000
	Salaries	35% of 10 M	3500000
	Commission	20% of Sale	7000000		Variable
Promotion Expense				3325000
	Production and Media cost		500000
	CO-op Advertising Cost		200000
	CO-op Advertising Allowance	7.5% of Sale	2625000		Variable
General and Adminsitrative Expense				1400000
	Manufacturing Overhead		700000
	Administrative Overhead		400000
	Staff Salaries		300000

Proforma Income Statement
Sales		35000000
Less: Cost of Goods Sold		15750000
Gross Margin		19250000
Sales Force Expense	10500000
Promotion Expense	3325000
Freight	2100000
Total Marketing Expense		15925000
Manufacturing Overhead	700000
Administrative Overhead	400000
Staff Salaries	300000
Total Gen and Adm Expense		1400000
Net Profit (before tax)		1925000

Part-2 Break Even :

Sales		35000000
Less: Variable Cost (working-1)		27475000
Contribution		7525000
Contribution Margin		21.50%	7525000/35000000
Fixed Cost:
Salaries	35% of 10 M	3500000
Production and Media cost		500000
CO-op Advertising Cost		200000
Manufacturing Overhead		700000
Administrative Overhead		400000
Staff Salaries		300000
Fixed Cost		5600000
BEP Sales Dollar		26046512	5600000/21.5%