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.

BONITA BEAUTY CORPORATION

Income Statement For the Year Ended December 31, 2014

Sales $75,000,000

Cost of goods sold

Variable $31,500,000

Fixed 8,610,000 40,110,000

Gross margin $34,890,000

Selling and marketing expenses

Commissions $13,500,000

Fixed costs 10,260,000 23,760,000

Operating income $11,130,000

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 $7,500,000.

(a) Under the current policy of using a network of sales agents, calculate the Bonita Beauty Corporation