Question

Concord 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, 2020, is as follows. $79,300,000 CONCORD BEAUTY CORPORATION Income Statement For the Year Ended December 31, 2020 Sales Cost of goods sold Variable $31,720,000 Fixed 8,540,000 Gross margin Selling and marketing expenses Commissions $14,274,000 Fixed costs 10,750,600 Operating Income 40,260,000 $39,040,000 25,024,600 $14,015,400 The company is considering hiring its own sales staff to replace the network of agents. It will pay its salespeople a commission of 10% and incur additional fixed costs of $6,344,000. Under the current policy of using a network of sales agents, calculate the Concord Beauty Carparation's break-even point in sales dollars for the year 2020. Break-even points Calculate the company's break-even point in sales dollars for the year 2020 if it hires its own sales force to replace the network of agents. Break-even points Calculate the degree of operating leverage at sales of $79,300,000 if (1) Concord Beauty uses sales agents, and (2) Concord Beauty employs its own sales stall. (Round answers to 2 decimal places, e.g. 1.25.) Degree of operating leverage (1) Concord Beauty uses sales agents (2) Concord Beauty employs its own sales starr Calculate the estimated sales volume in sales dollars that would generate an identical net income for the year ending December 31, 2020, regardless of whether Concord Beauty Carparation employs its own sales staff and pays them an 10% commission or continues to use the independent network of agents. Estimated sales volume

Answer 1

Page No ① Answer @ Break even point une current policy asales - $ 49,300,000 Variable costs = 31,400,000 + 14,274,000 . = $45994000 Contibution marin = 9300,000 – 45994000 = $33,306,000 fixed costo - 8540,000 + 10,450,600 $19,290,600 Operating income = 33306000 - 19290600 - $14015400 Contribution margin oratio - 33306000 79300,000 - 4294 Break even point : fixed cost contribution margin ratio 19290600 - 45930000 42-7. . .: Break even point = $45930000

Page No ③ Bicate ever point in changed policy Sales = $49300,000 Variable cost = 31420,000 + (79300,000 X 10'7) 4930 000 = 31420,000 + = $39650000 Contribution morgin = 49300,000 – 39,650,000 = $39650,000 fixed costs = 8540,000 + 10,750,600 + 6,344,000 $25634600 Operating income - 39650000 - 05634600 = $14015400 ratio oratio . Contribution margin = Contrubchon Contribution margin x100 Sales ' 396501000 x 100 = 50%. 79,300,000 Break even point = fixed cost 225634600 - 51269200 Contribution marginatio :50 .Break even point = $51269200

Page No ③ porahngleverage VW © Denne og opgading leveringen Contribution Degree of operating leverage = - karinings before interet e tase Bo) operating © Concord beauty woes sales agents Degree of operating leverage = guage 3 74015400 33306000 = 2.38 Loncord beauty croploys its own sales statt Degree of operating leverage = _39650,000 = 2.83 Degree of operating leverage 2:38 O Concord beauty uses sales agents concord beauty employs its own 2.83 sales sofabit

Page No 4 when uses sales Ashen employs L agents own statt Sales $ 49300,000 $79300,000 vauvable contes Court of goods sold ($31,720,000) ($31,720,000) (99300,000 XT67) Commission ($ 14,274,000) ($ 4930,000) Total variable costs. ( 45994000) (# 39650,000) Contributien magin $ 33306000 $ 39650,000 fined costs fixed cost of goods sold (15 8540,000) ($8540,000) fixed selling & marketing exp. ct 10, 150,600) ($ 17094600 ) Total fixed cost ($ 19290600) (1 25634600) EBĪTL operating profit $ 14015400 $ 14015400 10,150, 600 + 6344000 = $14094600 The operating profit is identical in each case whether Company ese sales agents or employs cwn statt. No need to change anything. . Estimated sales volume $79,300,000