Please HELP! Need help completing part b. Question 7 Bonita Beauty Corporation m
ID: 2422553 • Letter: P
Question
Please HELP! Need help completing part b.
Question 7 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, 2014, is as follows BONITA BEAUTY CORPORATION Income Statement For the Year Ended December 31, 2014 Sales $78,990,000 Cost of goods sold Variable Fixed Gross margin $36,335,400 8,940,000 45,275,400 33,714,600 Selling and marketing expenses Commissions Fixed costs Operating income 16,587,900 10,900,000 27,487,900 $6,226,700 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 $7,899,000 (a) Your answer is correct. 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 2014. (Round intermediate calculations to 2 decimal places e.g. 10.25 and final answers to o decimal places, e.g. 2,510.) Break-even point 60121212Explanation / Answer
(A) Current Policy:
Sales = $ 78990000
Variable Cost for COGS= $ 36335400
Contribution= Sales - Total Variable cost = $ 42654600
Contribution % = Contribution/Sales = $ 42654600 / $ 78990000 = 54 %
Out of above contribution Sales commission = 21 %
Net contribution= 54%- 21%= 33 %
Total Fixed cost= Fixed cost for COGS+ Fixed Selling cost= $ 8940000+ $ 10900000= $ 19840000
Break even point= Fixed cost/Contribution %= $ 19840000/ 33%= $ 60121212
( B) Proposed Policy- Own Sales force:
Contribution % = 54 % - 11% = 43%
Fixed cost = Current fixed cost + Additional Fixed cost = $ 19840000 + $ 7899000 = $ 27739000
Break Even Point = Fixed Cost / Contribution % = $ 27739000 / 43 % = $ 64509302
Hence Company's BEP for proposed policy of own sales force would be $ 64509302 sales.