Question
Bonita Beauty Corporation manufactures cosmetic products that are sold through a network of sales agents. The agents are paid a commission of18% of sales. The
Bonita Beauty Corporation manufactures cosmetic products that are sold through a network of sales agents. The agents are paid a commission of18% of sales. The income statement for the year ending December 31, 2020, is as follows.
BONITA BEAUTY CORPORATION
Income Statement
For the Year Ended December 31, 2020
Sales$79,300,000Cost of goods soldVariable$31,720,000Fixed8,540,00040,260,000Gross margin$39,040,000Selling and marketing expensesCommissions$14,274,000Fixed costs10,750,60025,024,600Operating income$14,015,400
The company is considering hiring its own sales staff to replace the network of agents. It will pay its salespeople a commission of10% and incur additional fixed costs of $6,344,000.
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 2020.
Calculate the company's break-even point in sales dollars for the year 2020 if it hires its own sales force to replace the network of agents.
Calculate the degree of operating leverage at sales of $79,300,000if (1) Bonita Beauty uses sales agents, and (2) Bonita Beauty employs its own sales staff.(Round answers to 2 decimal places, e.g. 1.25.)
Calculate the estimated sales volume in sales dollars that would generate an identical net income for the year ending December 31, 2020, regardless of whether Bonita Beauty Corporation employs its own sales staff and pays them an10% commission or continues to use the independent network of agents.
Estimated sales volume$
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