Bonità Beauty Corporato manufactures cosmetic products that are sold through à n
ID: 2406807 • Letter: B
Question
Bonità Beauty Corporato manufactures cosmetic products that are sold through à network or sales agents. The agents are paid àco ssion of 18% of sales. The come statement for the yea ending ecember 31, 2017, is as follows Income Statement For the Year Ended December 31, 2017 79,700,000 Cost of goods sold ?3,474,000 8,500,000 Fixed 41 974,O00 Gross margin 37,726,000 Selling and marketing expenses Commissions Fixed costs 14,346,000 10,060,000 24,405,000 The company is considering hiring its own sales staff to replace the network of agents. It will pay its salespeople acommission or g% and incur additional fotd costs of $7,173,000. Under the current policy of using a network of sales agents, caculate the Bonita Beauty Corporation's break-even point in sales dollars for the year 2017. (Round intermediate calculations to 2 decimal places e.g. 10.25 and final answers to O decimaf places, eg. 2,510.) Break-even point Calculate the company's break even point in sales dollars for the year 2017 it hires its own sales force to replace the etwork of a ents. Round intermediate calculations to 2 decimal places e g 10.25 and final answers to 0 decimal places, e 2,510. Break-even point g Calculate the degree of operating leverage at sales or $79,700,oco i (L) Donita Beauty uses sales agents, and (2) Donta Deauty employs Rs own sales stal. (Round answers to 2 decimal piaces, e.g. 1.25. Degree of operating leverage (1) Bonita Beauty uses sales agents (2) Bonita Beauty employs its own sales staf me tor the year erding December J1 2017, re ar ss or whether nita Deauty Corporation emp ys its own sales starr and p ys them an 9% commission or continues to use the inde endent calculate the estimated sales volume in sales dollars that would generate an identical net în network of agents Estimated sales volumeExplanation / Answer
Calculation of break even point in sales dollars under current policy Break even point in sales dollars = Fixed Expenses / Contribution Margin % Calculation of contribution Margin under Current Policy Sales $79,700,000 Less : Variable cost Cost of goods sold $33,474,000 Commission $14,346,000 Contribution Margin $31,880,000 Contribution Margin % = Contribution Margin / Sales = $31880000/$79700000 = 40% Fixed Expenses under Current Policy Cost of goods sold $8,500,000.00 Fixed selling and admin.exp. $10,060,000.00 Total Fixed Expenses $18,560,000.00 Break even point in sales dollars under Current Policy = $1,85,60,000 / 40% = $4,64,00,000 Calculation of break even point in sales dollars if company hires its own sales staff Calculation of contribution Margin Sales $79,700,000 Less : Variable cost Cost of goods sold $33,474,000 Commission $7,173,000 Contribution Margin $39,053,000 Contribution Margin % = Contribution Margin / Sales = $39053000 / $79700000 = 49% Total Fixed Expenses Cost of goods sold $8,500,000.00 Fixed selling and admin.exp. $17,233,000.00 Total Fixed Expenses $25,733,000.00 Break even point in sales dollars under Current Policy = $2,57,33,000 / 49% = $5,25,16,326.53 Calculation of Degree of operating Leverage Degree of Operating Leverage = Contribution Margin / [Contribution Margin - Fixed expense] Degree of Operating Leverage Bonita Beauty uses sales agents 2.39 Bonita Beauty employs its own sales staff 2.93