Question
trying to understand what exactly is this question asking me and how to work out this problem. Q: Determine the volume of sales at which
trying to understand what exactly is this question asking me and how to work out this problem.
Q: Determine the volume of sales at which net operating income would be equal regardless of whether Morocco Corp. sells through agents (at 20% commission rate) or employs its own sales force. These are my numbers:
Commission increases to 20%
sales $30,000,000
Cost of good sold
less: variable cost $17,800,000
commissions (30,000,000*20%) 6,000,000
Contribution Marign $6,200,000 $23,800,000 Margin Ratio 20.67%
Cost of good sold $2,400,000
Less: Fixed Adv. Exp. $800,000
Fixed Admin. Exp $3,200,000 $6,400,000
Net profit $(200,000)
Company's own sales force
sales $30,000,000
Cost of good sold
less: variable cost $17,800,000
commissions (30,000,000*10%) $3,000,000
Contribution Margin $9,200,000 $20,800,000 Margin Ratio 30.67%
Cost of good sold $2,400,000
Less: Fixed Adv. Exp.($800,000+ $500,000)$1,300,000
Fixed Admin. Exp $4,600,000 $8,300,000
Net profit $900,000
I think I need to use the formula for Operating Profit, but not sure how to proceed?
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