Apple Beauty Corporation manufactures cosmetic products that are sold through a network of sales agents. The agents
Question:
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 $11.7 million.
Instructions
(a) Under the current policy of using a network of sales agents, calculate the Apple Beauty Corporations break-even point in sales dollars for the year 2011.
(b) Calculate the companys break-even point in sales dollars for the year 2011 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
(1) Apple Beauty uses sales agents,
(2) Apple Beauty 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 net income for the year ending December 31, 2011, regardless of whether Apple
Beauty Corporation employs its own sales staff and pays them a 10% commission as well as incurring additional fixed costs of $11.7 million, or continues to use the independent network of agents.
(CMACanada-adapted)
Step by Step Answer:
Managerial Accounting Tools for business decision making
ISBN: 978-0470477144
5th edition
Authors: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso