Problem 20-6A (Part Level Submission) Bonita Beauty Corporation manufactures cos

Question

Problem 20-6A (Part Level Submission) Bonita Beauty Corporation manufactures cosmetic products that are sold through a network of sales agents. The agents are paid a commission of 18% of sales. The income statement for the year ending December 31, 2017, is as follows BONITA BEAUTY CORPORATION Income Statement For the Year Ended December 31, 2017 Sales Cost of goods sold $70,000,000 Variable Fixed Gross margin $28,000,000 8,500,000 36,500,000 $33,500,000 Selling and marketing expenses Commissions Fixed costs Operating income $12,600,000 10,000,000 22,600,000 $10,900,000 The company is considering hiring its own sales staff to replace the network of agents. It will pay its salespeople a commission of 7% and incur additional fixed costs of $7,700,000 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 2017. (Round intermediate calculations to 2 decimal places e.g. 10.25 and final answers to 0 decimal places, e.g 2,510.) Break-even point

Explanation / Answer

(a)

Contribution margin ratio = $29,400,000 ÷ $70,000,000 = 42%

Break-even point= $18,500,000 ÷ 42% = $44,047,619

Sales $70,000,000 Variable costs $40,600,000 Contribution margin $29,400,000 Less: Fixed costs $18,500,000 Operating income $10,900,000

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