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, 2017, is as follows.

BONITA BEAUTY CORPORATION

Income Statement

For the Year Ended December 31, 2017

Sales		$75,000,000
COGS
Variable	$31,500,000
Fixed	$8,610,000	$40,110,000
Gross margin		$34,890,000
Sell/Mkt'ing Exp
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 $7.5 million.

Instructions

*Be sure to include raw equations for each step and show all work*

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 2017

B.)Calculate the company's break-even point in sales dollars for the year 2017 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, 2017, regardless of whether Bonita Beauty Corporation employs its own sales staff and pays them an 8% commission or continues to use the independent network of agents.