Bonita Beauty Corporation manufactures cosmetic products that are sold through a
ID: 2418354 • Letter: B
Question
Bonita Beauty Corporation manufactures cosmetic products that are sold through a network of sales agents. The agents are paid a commission of 20% 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$75,320,000
Cost of goods sold
Variable$36,906,800
Fixed8,663,00045,569,800
Gross margin29,750,200
Selling and marketing expenses
Commissions15,064,000
Fixed costs10,750,00025,814,000
Operating income$3,936,200
The company is considering hiring its own sales staff to replace the network of agents. It will pay its salespeople a commission of 11% and incur additional fixed costs of $6,778,800.
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.)
Explanation / Answer
COGS variable costs = 49% of sales
Sales commissions = 15,064,000 / 77,320,000 = 20% of sales
Fixed costs = 8,663,000 + 10,750,000 = $19,413,000
Additonal Fixed cost=$19,413,000+$6,778,800=$26,191,800
Contribution ratio= 49% COGS+ 11% Selling commission=60%
Break even point in sales=Fixed cost/ Contribution ratio
=$26,191,800/60%
=$43,653,000