Question

Question 2 Sunland 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. $76,400,000 SUNLAND BEAUTY CORPORATION Income Statement For the Year Ended December 31, 2020 Sales Cost of goods sold Variable $32,852,000 Fixed 8,720,000 Gross margin Selling and marketing expenses Commissions $15,280,000 Fixed costs 10,360,900 Operating income 41,572,000 $34,828,000 25,640,900 $9,187,100 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 $9,932,000. Under the current policy of using a network of sales agents, calculate the Sunland Beauty Corporation's break-even point in sales dollars for the year 2020. Break-even point 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

Answer 1

Part 1
	Contribution Format Income Statement
	Sales		$   7,64,00,000
	Less:Variable expenses:
	Cost of goods sold	$ 3,28,52,000
	Sales Commissions	$ 1,52,80,000
	Total Variable expenses		$   4,81,32,000
	Contribution margin		$   2,82,68,000
	Less:Fixed expenses:
	Cost of goods sold	$    87,20,000
	Sales and marketing expenses	$ 1,03,60,900
	Total Fixed expenses		$   1,90,80,900
	Net Income		$      91,87,100
	Contribution margin ratio($28,268,000/$76,400,000)		37%
	Break-even Point($19,090,900/37%)		$   5,15,70,000
	Degree of operating leverage($28,268,000/$9,187,100)		3.08
Part 2
	Contribution Format Income Statement
	Sales		$   7,64,00,000
	Less:Variable expenses:
	Cost of goods sold	$ 3,28,52,000
	Sales Commissions($76,400,000*7%)	$    53,48,000
	Total Variable expenses		$   3,82,00,000
	Contribution margin		$   3,82,00,000
	Less:Fixed expenses:
	Cost of goods sold	$    87,20,000
	Sales and marketing expenses($10,360,900+$9,932,000)	$ 2,02,92,900
	Total Fixed expenses		$   2,90,12,900
	Net Income		$      91,87,100
	Contribution margin ratio($28,268,000/$76,400,000)		50%
	Break-even Point($29,012,900/50%)		$   5,80,25,800
	Degree of operating leverage($38,200,000/$9,187,100)		4.16
	Since in both the above parts the Net Income is same hence the Sales volume is the same at $76,400,000