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AI Excellent manufactures computer graphics hardware. The company sells its product through a network of sales agents. The agents are currently paid a 10% commission
AI Excellent manufactures computer graphics hardware. The company sells its product through a network of sales agents. The agents are currently paid a 10% commission on sales. The following table shows the financial results of AI Excellent's operations for 2020: RM1,200,000 420,000 180,000 600,000 Sales revenue Less: Cost of goods sold Variable Fixed Gross profit Less: Operating costs Sales commissions Fixed administrative costs Operating income Sales volume 120,000 300,000 RM180,000 2,000 units For the upcoming year, the sales agents are proposing a 5% increase in their commission. The president of AI Excellent is very unhappy with the proposal, "We are barely making a profit! Should we hire our own salespersons then?" The president has asked the accountant to gather information on the costs associated with hiring own salespersons in place of the sales agents. The accountant estimates that the company needs to hire 8 salespersons to cover the market area, and a sales manager to coach the salespersons. The company also needs to incur advertising cost if the salespersons are hired. The estimated costs associated with the new plan follow: Monthly salary: Salesperson Sales manager Annual advertising cost RM1,200 per salesperson RM4,000 RM19,800 d. Refer to the original data. At what level of sales revenue will the company earn the same operating income under either option? (4 marks)
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