Klyne Corporation manufactures pharmaceutical 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, 2017, is as follows:

Klyne is considering hiring its own sales staff to replace the network of agents. Klyne will pay its salespeople a commission of 10% and incur fixed costs of $2,080,000.

Required:

1. Calculate Klyne Corporation?s break-even point in sales dollars for the year 2017.

2. Calculate Klyne Corporation?s break-even point in sales dollars for the year 2017 if the company had hired its own sales force to replace the network of agents.

3. Calculate the degree of operating leverage at sales of $26,000,000, considering

(a) Klyne uses sales agents and

(b) Klyne employs its own staff. Describe the advantages and disadvantages of each alternative.

4. If Klyne increases the commission paid to its sales staff to 15%, keeping all other costs the same, how much revenue (in dollars) would Klyne have to generate to earn the same operating income it did in 2017?

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KLYNE CORPORATION Income Statement For the Year Ending December 31, 2017 $26,000,000 Sales Cost of goods sold $11,700,000 Variable Fixed 2.870.000 14.570,000 Gross margin 11,430,000 Selling and marketing expenses Commissions 4,680,000 Fixed costs 3,420,000 8.100.000 $ 3,330,000 Operating income