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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 18% of sales. The
Klyne Corporation manufactures pharmaceutical 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, 2020, is as follows: KLYNE CORPORATION Income Statement For the Year Ending December 31, 2020 Sales $ 33,000,000 Cost of goods sold Variable $ 14,850,000 Fixed 3,009,580 17,859,580 Gross margin 15,140,420 Selling and marketing expenses Commissions 5,940,000 Fixed costs 3,700,000 9,640,000 Operating income $ 5,500,420 Klyne is considering hiring its own sales staff to replace the network of agents. Klyne will pay its salespeople a commission of 10% and incur fixed costs of $2,080,000. Required: 1. Calculate Klyne Corporations break-even point in sales dollars for the year 2020. (Round your answer to 2 decimal places.) 2. Calculate Klyne Corporations 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.) 3. Calculate the degree of operating leverage at sales of $33,000,000, 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.) 4. If Klyne increases the commission paid to its sales staff to 15%, 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.)
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