Question

Problem 19-06A a-b, c, d (Video) Bramble 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. $77,300,000 BRAMBLE BEAUTY CORPORATION Income Statement For the Year Ended December 31, 2020 Sales Cost of goods sold Variable $30,920,000 Fixed 8,760.000 Gross margin Selling and marketing expenses Commissions $15,460,000 Fixed costs 10,000,000 Operating income 39,680,000 $37,620,000 25,460,000 $12,160,000 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 $7,730,000. Under the current policy of using a network of sales agents, calculate the Bramble 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 point

Answer 1

Contribution Margin Ratio = (Sales – Variable expenses)/Sales

= (77,300,000-30,920,000-15,460,000)/77,300,000

= 40%

Break even Sales = Fixed costs/CM Ratio

= (8760,000+10,000,000)/40%

= $46,900,000

CM Ratio = (77,300,000-30,920,000-7,730,000)/77,300,000

= 50%

Break even point = (8,760,000+10,000,000+7,730,000)/50%

= $52,980,000

	Sales Agents	Sales Staff
Sales	77,300,000	77,300,000
Less: Variable costs	46,380,000	38,650,000
Contribution Margin	30,920,000	38,650,000
Less: Fixed costs	18,760,000	26,490,000
Net Operating Income	12,160,000	12,160,000
DOL = CM/Net operating income	2.542763158	3.178453947
Estimated Volume = Difference in fixed cost/Difference in CM Ratio
=7,730,000/10%
i.e. $77,300,000