Need help with part c. thank you Question 7 Bonita Beauty Corporation manufactur
ID: 2422609 • Letter: N
Question
Need help with part c. thank you
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 $78,990,000 Sales Cost of goods sold $36,335,400 Variable 8,940,000 45,275,400 Fixed Gross margin 33,714,600 Selling and marketing expenses 16,587,900 Commissions 10,900,000 27,487,900 Fixed costs Operating income $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.Explanation / Answer
Answer
Bonita Beauty Corporation
Income statement for the year ended December 31, 2014
Figures in $
Use of sales Agent
Employs its own sales staff
Particulars
Amount
Amount
Sales
a
78990000
78990000
Costs of goods sold
Variable
b
36335400
36335400
Fixed
8940000
45275400
8940000
45275400
Gross margin
33714600
33714600
Selling and marketing expenses
Commissions
c
0.21
16587900
0.11
8688900
Fixed costs
10900000
27487900
18799000
27487900
(10900000+7899000)
Operating Income
d
6226700
6226700
Contribution (a-b-c)
e
26066700
33965700
(Sales - All variable costs)
Degree of operating leverage (e/d)
4.19
5.45
Bonita Beauty Corporation
Income statement for the year ended December 31, 2014
Figures in $
Use of sales Agent
Employs its own sales staff
Particulars
Amount
Amount
Sales
a
78990000
78990000
Costs of goods sold
Variable
b
36335400
36335400
Fixed
8940000
45275400
8940000
45275400
Gross margin
33714600
33714600
Selling and marketing expenses
Commissions
c
0.21
16587900
0.11
8688900
Fixed costs
10900000
27487900
18799000
27487900
(10900000+7899000)
Operating Income
d
6226700
6226700
Contribution (a-b-c)
e
26066700
33965700
(Sales - All variable costs)
Degree of operating leverage (e/d)
4.19
5.45
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