Problem 19-6A (Part Level Submission)

Bonita Beauty Corporation manufactures cosmetic products that are sold through a network of sales agents. The agents are paid a commission of 20% 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				$76,400,000
Cost of goods sold
Variable		$32,852,000
Fixed		8,720,000		41,572,000
Gross margin				$34,828,000
Selling and marketing expenses
Commissions		$15,280,000
Fixed costs		10,360,000		25,640,000
Operating income				$9,188,000

The company is considering hiring its own sales staff to replace the network of agents. It will pay its salespeople a commission of 7% and incur additional fixed costs of $9,932,000.

(a)

	Your answer is correct.

Under the current policy of using a network of sales agents, calculate the Bonita Beauty Corporations break-even point in sales dollars for the year 2017. (Round intermediate calculations to 2 decimal places e.g. 10.25 and final answers to 0 decimal places, e.g. 2,510.)

Break-even point

$ 51,567,568

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Attempts: 1 of 5 used

(b)

	Your answer is correct.

Calculate the companys break-even point in sales dollars for the year 2017 if it hires its own sales force to replace the network of agents. (Round intermediate calculations to 2 decimal places e.g. 10.25 and final answers to 0 decimal places, e.g. 2,510.)

Break-even point

$ 58024000

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Attempts: 2 of 5 used

(c1)

Calculate the degree of operating leverage at sales of $76,400,000 if (1) Bonita Beauty uses sales agents, and (2) Bonita Beauty employs its own sales staff. (Round answers to 2 decimal places, e.g. 1.25.)

				Degree of operating leverage
(1)		Bonita Beauty uses sales agents
(2)		Bonita Beauty employs its own sales staff