Question

Sheridan 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. SHERIDAN BEAUTY CORPORATION Income Statement For the Year Ended December 31, 2020 Sales $79.700,000 Cost of goods sold Variable $32,677,000 Fixed 8,500,000 41.177.000 Gross margin $38,523,000 Selling and marketing expenses Commissions $14,346,000 Fixed costs 10,060,700 24.406,700 Operating income $14,116,300 The company is considering hiring its own sales staff to replace the network of agents. It will pay its salespeople a commission of 9% and incur additional fixed costs of $7.173,000 (a) Under the current policy of using a network of sales agents, calculate the Sheridan Beauty Corporation's break even point in sales dollars for the year 2020,

Answer 1

Correct Answer:

Break even in sales dollars

$ 45,270,000.00

Working:

Break even in sales dollars
A	sales revenue		$ 79,700,000.00
	Less: variable cost
B	Variable cost of goods sold	$ 32,677,000.00
C	Sales commission	$ 14,346,000.00
D =B+C	Total variable cost		$ 47,023,000.00
E = A-D	Contribution margin		$ 32,677,000.00
F=E/A*100	contribution margin ratio		41%
	Fixed cost
G	Fixed cost of goods sold	$    8,500,000.00
H	Fixed selling and marketing expenses	$ 10,060,700.00
I=G+H	Total fixed cost		18560700
J=I/F	Break even in sales dollars		$ 45,270,000.00

End of answer.

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