Discuss how the cost structure of these two companies affects their operating (e) leverage and profitability. Đ6-6A Bonita Beauty Corporation manufactures cosmetic products that are sold through network of sales agents. The agents are paid a commission of 18% of sales. The income statement for the year ending December 31, 2014, is as follows. Determine contribution margin, break-even point, target sales, and degree of operating leverage. Bonita Beauty Corporation (LO 2, 5), AN Income Statement For the Year Ended December 31, 2014 Sales $75,000,000 Cost of goods sold Variable Fixed $31,500,000 8,610,000 40,110,000 Gross margin Selling and marketing expenses 34,890,000 Commissions 13,500,000 10,260,000 Fixed costs 23,760,000 Operating income $11,130,000 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 $7.5 million. Instructions (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 2014. (b) 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. (c) Calculate the degree of operating leverage at sales of $75 million if (1) Bonita Beauty uses sales agents, and (2) Bonita Beauty employs its own sales staff. Describe the ad- vantages and disadvantages of each alternative. (d) Calculate the estimated sales volume in sales dollars that would generate an identi- cal net income for the year ending December 31, 2014, regardless of whether Bonita Beauty Corporation employs its own sales staff and pays them an 8% commission or continues to use the independent network of agents. (a) $47,175 (c) (2) 3.37 (CMA-Canada adapted)
Discuss how the cost structure of these two companies affects their operating (e) leverage and profitability. Đ6-6A Bonita Beauty Corporation manufactures cosmetic products that are sold through network of sales agents. The agents are paid a commission of 18% of sales. The income statement for the year ending December 31, 2014, is as follows. Determine contribution margin, break-even point, target sales, and degree of operating leverage. Bonita Beauty Corporation (LO 2, 5), AN Income Statement For the Year Ended December 31, 2014 Sales $75,000,000 Cost of goods sold Variable Fixed $31,500,000 8,610,000 40,110,000 Gross margin Selling and marketing expenses 34,890,000 Commissions 13,500,000 10,260,000 Fixed costs 23,760,000 Operating income $11,130,000 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 $7.5 million. Instructions (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 2014. (b) 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. (c) Calculate the degree of operating leverage at sales of $75 million if (1) Bonita Beauty uses sales agents, and (2) Bonita Beauty employs its own sales staff. Describe the ad- vantages and disadvantages of each alternative. (d) Calculate the estimated sales volume in sales dollars that would generate an identi- cal net income for the year ending December 31, 2014, regardless of whether Bonita Beauty Corporation employs its own sales staff and pays them an 8% commission or continues to use the independent network of agents. (a) $47,175 (c) (2) 3.37 (CMA-Canada adapted)
Chapter3: Cost-volume-profit Analysis
Section: Chapter Questions
Problem 4PB: West Island distributes a single product. The companys sales and expenses for the month of June are...
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Transcribed Image Text:Discuss how the cost structure of these two companies affects their operating
(e)
leverage and profitability.
Đ6-6A Bonita Beauty Corporation manufactures cosmetic products that are sold through
network of sales agents. The agents are paid a commission of 18% of sales. The income
statement for the year ending December 31, 2014, is as follows.
Determine contribution
margin, break-even point,
target sales, and degree of
operating leverage.
Bonita Beauty Corporation
(LO 2, 5), AN
Income Statement
For the Year Ended December 31, 2014
Sales
$75,000,000
Cost of goods sold
Variable
Fixed
$31,500,000
8,610,000
40,110,000
Gross margin
Selling and marketing expenses
34,890,000
Commissions
13,500,000
10,260,000
Fixed costs
23,760,000
Operating income
$11,130,000
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 $7.5
million.
Instructions
(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 2014.
(b) 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.
(c) Calculate the degree of operating leverage at sales of $75 million if (1) Bonita Beauty
uses sales agents, and (2) Bonita Beauty employs its own sales staff. Describe the ad-
vantages and disadvantages of each alternative.
(d) Calculate the estimated sales volume in sales dollars that would generate an identi-
cal net income for the year ending December 31, 2014, regardless of whether Bonita
Beauty Corporation employs its own sales staff and pays them an 8% commission or
continues to use the independent network of agents.
(a) $47,175
(c) (2) 3.37
(CMA-Canada adapted)
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