Question
Use below information for Questions 1 to 3: X Inc. manufactures tables that are sold through a network of sales agents. The agents are paid
Use below information for Questions 1 to 3: X Inc. manufactures tables that are sold through a network of sales agents. The agents are paid a commission at a percent of sales basis. For the year ending December 31, 2017, Sales have been $82,200,000. Gross profit margin and operating profit margin have been reported to be 32% and 16%, respectively. . 43% of COGS have been variable. Besides, 83% of operating expenditures have been variable sales commissions. The company is considering hiring its own sales staff to replace the network of agents. It will pay its salespeople a commission of 8.70% and incur additional fixed costs of $4,540,000. Q-1) Calculate the degree of operating leverage at sales $82,000,000 if the company uses sales agents. Q-2) the owner of X Inc., considers employing in-house sales staff. Calculate the change in net income in $ if sales increase by 10% assuming in-house sales staff is employed. Q-3) Calculate the estimated sales volume in $ that would generate an identical net income for the year ending December 31, 2017, regardless of whether the company uses sales agents or employs its own sales staff.
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