Kukry Ltd. is a wholesaler of rugby uniforms and supplies. It currently uses independent sales agents to market its products in Eastern Canada. These agents currently receive a commission of 20% of sales but are unhappy and are demanding an increase of commissions to 25% of sales. The accountant had prepared the companys budget for the 2020 fiscal year before hearing of the sales agents demands. The budgeted income statement that he prepared for 2020 was as follows:

Sales.$15,000,000

Cost of goods sold (100% variable)..9,000,000

Selling and administrative expenses:

Sales agents commissions.3,000,000

Other (100% fixed)800,000

Income from operations..$2,200,000

The corporate income tax rate is 40%.

The President is unhappy with the sales agents demands and has proposed replacing them with full time salespersons. Three salespersons would be required at an annual salary of $50,000 plus a 4% of sales commission. They would need a sales manager with a fixed annual salary of $120,000. All other fixed costs and the cost of goods sold percentage would remain the same for 2020.

Required: SHOW ALL YOUR CALCULATIONS.

1. At the break-even point, CM must equal ________________________________. Use words, not numbers.
2. Calculate the break-even point in sales dollars based on the current budget.
3. Calculate the break-even point in sales dollars if the company decides to eliminate the sales agents and hire its own employees.
4. Based on the original budget, calculate the sales required if the company wants to earn 8.0% after tax.
5. Would you recommend the change from the current sales staff structure to the proposed one where the company uses its own employees? Assume that the company expects sales to decrease by 10% if this change is made. SHOW CALCULATIONS.