Bonita Beauty Corporation manufactures cosmetic products that are sold through a network of sales agents. The agents are paid a commission of 18% of sales. The income statement for the year ending December 31, 2014, is as follows.

The company is considering hiring its own sales staff to replace the network of agents. It will pay its salespeople a commission of 8% and incur additional fixed costs of $7.5 million.

Instructions
(a) Under the current policy of using a network of sales agents, calculate the Bonita Beauty Corporation€™s break-even point in sales dollars for the year 2014.
(b) Calculate the company€™s break-even point in sales dollars for the year 2014 if it hires its own sales force to replace the network of agents.
(c) Calculate the degree of operating leverage at sales of $75 million if
(1) Bonita Beauty uses sales agents, and
(2) Bonita Beauty employs its own sales staff. Describe the advantages and disadvantages of each alternative.
(d) Calculate the estimated sales volume in sales dollars that would generate an identical net income for the year ending December 31, 2014, regardless of whether Bonita Beauty Corporation employs its own sales staff and pays them an 8% commission or continues to use the independent network ofagents.

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Bonita Beauty Corporation Income Statement For the Year Ended December 31, 2014 Sales Cost of goods sold $75,000,000 Variable Fixed Gross margin $31,500,000 8,610,000 40,110.000 34,890,000 Selling and marketing expenses Commissions Fixed costs Operating income 13,500,000 10,260,000 23,760,000 $11,130,000