Bonita Beauty Corporation manufactures cosmetic products that are sold through a network of sales agents. The agents are paid a commission of 18% of sales. The income statement for the year ending December 31, 2014, is as follows.
BONITA BEAUTY CORPORATION
Income Statement For the Year Ended December 31, 2014
Sales $75,000,000
Cost of goods sold
Variable $31,500,000
Fixed 8,610,000 40,110,000
Gross margin $34,890,000
Selling and marketing expenses
Commissions $13,500,000
Fixed costs 10,260,000 23,760,000
Operating income $11,130,000
The company is considering hiring its own sales staff to replace the network of agents. It will pay its salespeople a commission of 8% and incur additional fixed costs of $7,500,000.
(a) Under the current policy of using a network of sales agents, calculate the Bonita Beauty Corporation's break-even point in sales dollars for the year 2014. (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 $:
(b) Calculate the company's break-even point in sales dollars for the year 2014 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 $:
Calculate the degree of operating leverage at sales of $75,000,000 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
Calculate the estimated sales volume in sales dollars that would generate an identical net income for the year ending December 31, 2014, regardless of whether Bonita Beauty Corporation employs its own sales staff and pays them an 8% commission or continues to use the independent network of agents.
Estimated sales volume $: