Question
Pharoah Beauty Corporation manufactures cosmetic products that are sold through a network of sales agents. The agents are paid commission of 22% of sales. The
Pharoah Beauty Corporation manufactures cosmetic products that are sold through a network of sales agents. The agents are paid commission of 22% of sales. The income statement for the year ending December 31, 2025, is as follows.
Pharoah Beauty Corporation Income Statement For the Year Ended December 31, 2025 | ||
Sales | $76,900,000 | |
Cost of goods sold | ||
Variable | $30,760,000 | |
Fixed | 8,580,000 | $39,340,000 |
Gross profit | $37,560,000 | |
Selling and marketing expenses | ||
Commissions | $16,918,000 | |
Fixed costs | 10,070,400 | 26,988,400 |
Operating income | $10,571,600 |
The company is considering hiring its own sales staff to replace the network of agents. It will pay its salespeople a commission of 10% and incur additional fixed costs of $9,228,000.
Under the current policy of using a network of sales agents, calculate the Pharoah Beauty Corporations break-even point in sales for the year 2025.
= 49,080,000
Break-even point in sales dollars for the year 2025 if it hires its own sales force to replace the network of agents.
= $55,756,800
Question: Calculate the degree of operating leverage at sales of $76,900,000 if (1) Pharoah Beauty uses sales agents, and (2) Pharaoh Beauty employs its own sales staff.
1). Pharoah Beaty uses sales agents.
2). Pharoah Beauty employs its own sales staff.
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