Question

Bonita Beauty Corporation manufactures cosmetic products that are sold through a network of sales agents. The agents are paid a commission of 20% of sales. The income statement for the year ending December 31, 2020, is as follows.

BONITA BEAUTY CORPORATION
Income Statement For the Year Ended December 31, 2020

Sales $79,500,000
Cost of goods sold
Variable $33,390,000
Fixed 8,670,000 42,060,000
Gross margin $37,440,000
Selling and marketing expenses
Commissions $15,900,000
Fixed costs 10,159,000 26,059,000
Operating income $11,381,000

The company is considering hiring its own sales staff to replace the network of agents. It will pay its salespeople a commission of 8% and incur additional fixed costs of $9,540,000.

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 2020.

Answer 1

$80,940,000

Step-by-step explanation:

Calculation for the estimated sales volume in sales dollars that would generate an identical net income for the year ending December 31, 2020

First step is to calculate New Sales commission

New Sales commission = $79,500,000*8%

New Sales commission= 6,360,000

Second step is to calculate Cm ratio

Cm ratio = (79,500,000-6,360,000-33,390,000)/79,500,000 = 50%

Now let calculate the Estimated sales revenue

Estimated sales revenue = (8,670,000+10260000+ 10,159,000+$11,381,000)/.50 = $80,940,000

Therefore the estimated sales volume in sales dollars that would generate an identical net income for the year ending December 31, 2020 will be $80,940,000