Question 1 (Total = 18 marks) InSane Inc. manufactures cosmetic products that are sold through a network of sales agents. The agents are paid a commission of 16.25% of sales. This is option A, with forecast income statement for the year ending December 31, 2021 appended below: InSane Inc. Forecast Income Statement For the Year Ending December 31, 2021 $120,000,000 $58,500,000 11,000,000 Sales Cost of goods sold Variable Fixed Gross margin Selling and marketing expenses Commissions Fixed costs Operating income 69,500,000 50,500,000 19,500,000 10,000,000 29,500,000 $21,000,000 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 $12.0 million. The additional fixed costs will be used to expand the sales floor area. This is option B. Required: (a) Under the current policy of using a network of sales agents (option A), calculate Insane Inc.'s break-even point in sales dollars for the year 2021. (2.5 marks) (b) Calculate InSane Inc.'s break-even point in sales dollars for the year 2021 if it hires its own sales force (option B) to replace the network of agents. Based on the difference in break-even points between options A and B, provide an analysis about the retention (option A) or replacement option B) of the network of agents. Explain which one is preferable? (3.5 marks) (c) Calculate the target sales values in dollars that would generate an identical net income for the year ending December 31, 2021, regardless of whether InSane Inc. employs its own sales staff and pays them a 10% commission as well as incurring additional fixed costs of $12.0 million (option B), or continues to use the independent network of agents (option A). In not more than 100 words, explain how you formulate the equation and state the assumption(s) that you have made to arrive at the answer. (6.5 marks) (d) Provide a recommendation to InSane Inc. about retention (option A) or replacement (option B) of the network of agents if the sales level in the year 2021 is forecast to be higher than the target sales value [what you calculated in (c) above]. In not more than 150 words, state the assumption(s) and justify your recommendation with a numerical example of your own. (5.5 marks)