Question
Bonita Beauty Corporation manufactures cosmetic products that are sold through a network of sales agents. The agents are paid a commission of 20% of sales.
Bonita Beauty Corporation manufactures cosmetic products that are sold through a network of sales agents. The agents are paid a commission of 20% 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 | $76,400,000 | |||
| Cost of goods sold | ||||
| Variable | $32,852,000 | |||
| Fixed | 8,720,000 | 41,572,000 | ||
| Gross margin | $34,828,000 | |||
| Selling and marketing expenses | ||||
| Commissions | $15,280,000 | |||
| Fixed costs | 10,360,900 | 25,640,900 | ||
| Operating income | $9,187,100 | |||
The company is considering hiring its own sales staff to replace the network of agents. It will pay its salespeople a commission of 7% and incur additional fixed costs of $9,932,000.
1. 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 an 7% commission or continues to use the independent network of agents.
| Estimated sales volume: |
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Horngrens Financial and Managerial Accounting
Authors: Tracie L. Nobles, Brenda L. Mattison, Ella Mae Matsumura
5th edition
978-0133866292
