Kindle, Inc. manufactures cosmetic products that are sold through a network of sales agents. Agents receive a commission of 12.5% of sales. The income statement for the year ended December 31, 2016 is as follows.

KINDLE, INC.

Statement of income

Year ended December 31, 2016

Sales                                                 $130,000

cost of goods sold

Variables              $58,500

Fixed                     14,350                  72,850

Gross margin                                     57,150

Selling and marketing expenses

Commissions        $16,250

Fixed costs             17,100                  33,350

Operating profit                                 $23,800

The company is considering hiring its own sales staff to replace the agent network. It will pay its salespeople a 10% commission and incur additional fixed costs of $13 million.

 Required

(a) Based on the current policy of using a network of sales agents, calculate Kindle, Inc.'s breakeven point in sales dollars for the year 2016.

(b) Calculate the company's breakeven point in sales dollars for the year 2016 if it hires its own sales force to replace the agent network.

(c) Calculate the degree of operating leverage in sales of $130 million if 

(1) Kindle, Inc. uses sales agents and 

(2) Kindle, Inc. employs its own sales staff.

Answer rating: 100% (QA)

a To calculate the breakeven point in sales dollars for the year 2016 using the current policy of us... View the full answer