Olin Beauty Corporation manufactures cosmetic products that aresold through a ne

Question

Olin Beauty Corporation manufactures cosmetic products that aresold through a network of sales agents. The agents are paid acommission of 16% of sales. The income statement for the yearending December 31, 2011, is as follows.

Sales                                                           $78,637,000
Cost of Goods Sold
Variable                 $35,305,000
Fixed                         7,809,000                  43,114,000
GrossMargin                                              $35,523,000
Selling and Marketing Expenses
Commissions         $12,581,920
FixedCosts             10,644,000                  23,225,920
OperatingIncome                                       $12,297,080

The company is considering hiring its own sales staff to replacethe network of agents. It will pay its salespeople acommission of 5% and incur additional fixed costs of$8,650,070.

1) Under the current policy of using a network of sales agents,calculate the Olin Beauty Corp.'s break-even point in sales dollarsfor the year 2011.

2) Calculate the company's break-even point in sales dollars forthe year 2011 if it hires its own sales force to replace thenetwork of agents.

3) Calculate the degree of operating leverage at sales of$78,637,000 if (1) Olin Beauty uses sales agents, and (2) OlinBeauty employs its own sales staff.

(4) Calculate the estimated sales volume in sales dollars thatwould generate an identical net income for the year ending December31, 2011, regardless of whether Olin Beauty Corp. employs its ownsales staff and pays them a 5% commission or continues to use theindependent network of agents.

Explanation / Answer

x.Xtribution based Income statement

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