Klyne Corporation manufactures pharmaceutical products that are sold through a n
ID: 2430271 • Letter: K
Question
Klyne Corporation manufactures pharmaceutical products that are sold through a network of sales agents. The agents are paid a commission of 28% of sales. The income statement for the year ending December 31, 2017, is as follows: Klyne Corporation manufactures pharmaceutical products that are sold through a network of sales agents The agents are paid a commission of 28% of sales. The income statement for the year ending December 31, 2017, is as follows KLYNE CORPORATION Income Statement For the Year Ending December 31, 2017 Sales 31,000,000 Cost of goods sold Variable 17,050,000 629,000 9,79000 Gross margin Selling and marketing expenses 11,321,000 Commissions Fixed costs 8,680,000 2,070,000 10,750,000 Operating income $ 571 ,000 Klyne is considering hiring its own sales staff to replace the network of agents. Klyne will pay its salespeople a commission of 12% and incur fixed costs of $2,090,000 Required 1. Calculate Klyne Corporation's break-even point in sales dollars for the year 2017. (Round your answer to 2 decimal places.) Break-even point 2. Calculate Klyne Corporation's break-even point in sales dollars for the year 2017 if the company had hired its own sales force to replace the network of agents. (Round your answer to 2 decimal places.) Break-even pointExplanation / Answer
1. Calculation of break even point in sales dollars for the year 2017:
Break even point = [Fixed cost ÷ Contibution ] x sales
= [$4,699,000 ÷ $5,270,000] x 31,000,000
= $27,641,176.47
2. Calculation of break even point (In dollars), if own sales staff hired:
Break even point = [Fixed cost ÷ Contibution ] x sales
= [$6,789,000 ÷ $10,230,000] x 31,000,000
= $20,572,727.27
3. Calcultion of operating leverage:
Operating leverage = Contribution margin ÷ Net profit
Sales $31,000,000 Variable cost Cost of goods sold $17,050,000 Commission $8,680,000 $25,730,000 Contribution margin $5,270,000 Fixed cost Cost of goods sold $2,629,000 Selling and Marketing expenses $2,070,000 $4,699,000 Net profit $571,000Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.