Klyne Corporation manufactures pharmaceutical products that are sold through a n
ID: 2514118 • Letter: K
Question
Klyne Corporation manufactures pharmaceutical products that are sold through a network of sales agents. The agents are paid a commission of 22% of sales. The income statement for the year ending December 31, 2017, is as follows: KLYNE CORPORATION Income Statememt For the Year Ending December 31, 2017 Sales $ 28,000,000 Cost of goods sold Variable $ 13,720,000 2874,00016,594,000 Gross margin Selling and marketing expenses 11,406,000 Commissions Fixed costs 6,160,000 3,320,000 9,480,000 Operating income $1,926,000 Klyne is considering hiring its own sales staff to replace the network of agents. Klyne will pay its salespeople a commission of 10% and incur fixed costs of $2,084,000.Explanation / Answer
3.
Using Sales Agents
Using Own Sales Force
Revenues (A)
Variable Costs
Cost of goods sold—variable
Marketing commissions
Contribution margin (B)
Fixed Costs (C )
Commission
fixed cost
Operating income (OI)
Contribution margin percentage (CMP) (B/A)
Breakeven revenues (C/CMP)
Degree of operating leverage ( B/OI)
4.
Fixed marketing costs = $5,404,000
Operating income = Revenues-Costs manufavturing variable - costs manufacturing fixed - costs marketing variable- costs marketing fixed
Using Sales Agents
Using Own Sales Force
Revenues (A)
28,000,000 28,000,000Variable Costs
Cost of goods sold—variable
13,720,000 13,720,000Marketing commissions
6,160,000 19,880,000 2,800,000 16,520,000Contribution margin (B)
8,120,000 11,480,000Fixed Costs (C )
Commission
3,320,000 5,404,000fixed cost
2,874,000 6,194,000 2,874,000 8,278,000Operating income (OI)
1,926,000 3,202,000Contribution margin percentage (CMP) (B/A)
29.00% 41.00%Breakeven revenues (C/CMP)
21358620.69 20190243.9Degree of operating leverage ( B/OI)
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