Olin 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, 2012, is as follows:

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 fixed costs of $6,240,000.
Instructions
(a) Under the current policy of using a network of sales agents, calculate the Olin Beauty Corporation's break-even point in sales dollars for the year 2012.
(b) Calculate the company's break-even point in sales dollars for the year 2012 if it hires its own sales force to replace the network of agents.
(c) Calculate the degree of operating leverage at sales of $78 million if Olin Beauty (1) uses sales agents, and (2) employs its own sales staff. Describe the advantages and disadvantages of each alternative.
(d) Calculate the estimated sales volume in sales dollars that would generate an identical operating income for the year ending December 31, 2012, regardless of whether Olin Beauty Corporation employs its own sales staff and pays them a 10% commission or continues to use the independent network of agents.

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OLIN BEAUTY CORPORATION Income Statement Year Ending December 31, 2012 Sales Cost of goods sold $78,000,000 Variable Fixed Gross margin S36,660,000 7,940,000 44,600,000 33,400,000 Selling and marketing expenses Commissions Fixed costs Operating income $14,040,000 10,260,000 24,300,000