Using the P6-6A problem. Could you break down how to do each of these questions

Question

Using the P6-6A problem. Could you break down how to do each of these questions step-by-step?

(a) Under the current policy of using a network of sales agents, calculate 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 hireds 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 adavantages and disadvantages of each alternative.

(d) Calculate the estimated sales volume in sales dollars that would generate an identical net income for the year ending December 31, 2014, regardless of whether Bonita Beauty Corporation employs its own sales staff and pay pays them 8% commission or continues to use the independent network of agents.

Explanation / Answer

a) Break even point = Total Cost incurred by the company= Cost of goods sold+ Selling and marketing expenses= $40,110,000+ $23,760,000 = $63,870,000 b) Break even point = Total Cost incurred by the company= Cost of goods sold+ Selling and marketing expenses In this case, commisions= 8% of sales = 0.08*75,000,000 = 6,000,000 and fixed costs= 10,260,000+7,500,000 = 17,760,000 Therefore, Selling and marketing expenses= 6,000,000 + 17,760,000 = 23,760,000 Break even point = $40,110,000+ $23,760,000 = $63,870,000

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