Reference no: EM131808613
Problem - 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, 2017, is as follows.
BONITA BEAUTY CORPORATION Income Statement For the Year Ended December 31, 2017
Sales $77,400,000
Cost of goods sold Variable $37,152,000
Fixed 8,660,000 45,812,000
Gross margin $31,588,000
Selling and marketing expenses Commissions $13,932,000
Fixed costs 10,800,000 24,732,000
Operating income $6,856,000
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 $7,740,000.
(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 2017.
(b) Calculate the company's break-even point in sales dollars for the year 2017 if it hires its own sales force to replace the network of agents.