Question

Marigold Beauty Corporation manufactures cosmetic products that are sold through a network of sales agents. The agents are paid a commission of 22% of sales. The income statement for the year ending December 31, 2020, is as follows.

MARIGOLD BEAUTY CORPORATION Income Statement For the Year Ended December 31, 2020
Sales				$75,100,000
Cost of goods sold
Variable		$32,293,000
Fixed		8,870,000		41,163,000
Gross margin				$33,937,000
Selling and marketing expenses
Commissions		$16,522,000
Fixed costs		10,380,000		26,902,000
Operating income				$7,035,000

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 $11,265,000.

PART 1: Calculate the company’s break-even point in sales dollars for the year 2020 if it hires its own sales force to replace the network of agents.

Break-even point $_____________

PART 2: Calculate the degree of operating leverage at sales of $75,100,000 if (1) Marigold Beauty uses sales agents, and (2) Marigold Beauty employs its own sales staff. (Round answers to 2 decimal places, e.g. 1.25.)

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

PART 3: Calculate the estimated sales volume in sales dollars that would generate an identical net income for the year ending December 31, 2020, regardless of whether Marigold Beauty Corporation employs its own sales staff and pays them an 7% commission or continues to use the independent network of agents.

Estimated sales volume

$__________________

Answer 1