Question

Bonita Beauty Corporation manufactures cosmetic products that are sold through a network of sales agents. The agents are paid a commission of 21% of sales. The income statement for the year ending December 31, 2020, is as follows. BONITA BEAUTY CORPORATION Income Statement For the Year Ended December 31, 2020 Sales $78,800,000 Cost of goods sold     Variable $31,520,000     Fixed 8,650,000 40,170,000     Gross margin $38,630,000 Selling and marketing expenses     Commissions $16,548,000     Fixed costs 10,970,900 27,518,900     Operating income $11,111,100 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 $8,668,000.

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 2020. Break-even point $ LINK TO TEXT LINK TO TEXT

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 $ LINK TO TEXT LINK TO TEXT

Calculate the degree of operating leverage at sales of $78,800,000 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 LINK TO TEXT LINK TO TEXT

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 Bonita Beauty Corporation employs its own sales staff and pays them an 10% commission or continues to use the independent network of agents. Estimated sales volume $

Answer 1