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Klyne Corporation manufactures pharmaceutical products that are sold through a network of sales agents. The agents are paid a commission of 14% of sales. The
Klyne Corporation manufactures pharmaceutical products that are sold through a network of sales agents. The agents are paid a commission of 14% of sales. The income statement for the year ending December 31, 2020, is as follows: $ 34,500,000 KLYNE CORPORATION Income Statement For the Year Ending December 31, 2020 Sales Cost of goods sold Variable $21,390,000 Fixed 2,634,000 Gross margin Selling and marketing expenses Commissions 4,830,000 Fixed costs 1,895,000 Operating income 24,024,000 10,476,000 6,725,000 3,751,000 $ Klyne is considering hiring its own sales staff to replace the network of agents. Klyne will pay its salespeople a commission of 15% and incur fixed costs of $2,097,000. Required: 1. Calculate Klyne Corporation's break-even point in sales dollars for the year 2020. (Round your answer to 2 decimal places.) Break-even point 2. Calculate Klyne Corporation's break-even point in sales dollars for the year 2020 if the company had hired its own sales force to replace the network of agents. (Round your answer to 2 decimal places.) Break-even point 3. Calculate the degree of operating leverage at sales of $34,500,000, considering (a) Klyne uses sales agents and (b) Klyne employs its own staff. Describe the advantages and disadvantages of each alternative. (Round your answers to 2 decimal places.) Degree of Operating Leverage Using sales agent Employing own sales staff 4. If Klyne increases the commission paid to its sales staff to 12%, keeping all other costs the same, how much revenue (in dollars) would Klyne have to generate to earn the same operating income it did in 2020? (Round your answer to 2 decimal places.) Revenue in dollars)
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