P$6\mathrm{.}6($LO $1,4),$ AN Bonita 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 $31,2022,$ is as follows.

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Bonita Beauty Corporation

Income Statement

For the Year Ended December $31,2022$

Bonita Beauty Corporation

Income Statement

For the Year Ended December $31,2022$

Sales $$75,000,000$

Cost of goods sold

Variable $$31,500,000$

Fixed $8,610,00040,110,000$

Gross margin $34,890,000$

Selling and marketing expenses

Commissions $13,500,000$

Fixed costs $10,260,00023,760,000$

Operating income $$11,130,000$

The company is considering hiring its own sales staff to replace the network of agents.

It will pay its salespeople a commission of $8\%$ and incur additional fixed costs of $$7\mathrm{.}5$

million.

Instructions

$1.$ Under the current policy of using a network of sales agents, calculate the Bonita

Beauty Corporation$$s break$-$even point in sales dollars for the year $2022.$

a$.$ $$47,175,000$

$2.$ Calculate the company$$s break$-$even point in sales dollars for the year $2022$ if it

hires its own sales force to replace the network of agents.

$3.$ Calculate the degree of operating leverage at sales of $$75$ million if $(1)$ Bonita

Beauty uses sales agents, and $(2)$ Bonita Beauty employs its own sales staff.

Describe the advantages and disadvantages of each alternative.

c$.(2)3\mathrm{.}37$

$4.$ Calculate the estimated sales volume in sales dollars that would generate an

identical net income for the year ending December $31,2022,$ regardless of

whether Bonita Beauty Corporation employs its own sales staff and pays them an

$8\%$ commission or continues to use the independent network of agents. $($Hint: Set

up an equation, with the net income formula employing independent agents as

one side of the equation and the net income formula employing the company$$s

own sales staff as the other side of the equation. Before solving, eliminate those

aspects that are the same on each side of the equation as they do not vary under

the two alternatives.$)$

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Printed by: cravenerm$1$@agmu.edu. Printing is for personal use only. No part of this book may be reproduced or transmitted without

publisher's prior permission. Violators will be prosecuted.

$($CMA$-$Canada adapted$)$

Prepare income statements under absorption costing and variable costing for a company with

beginning inventory, and reconcile differences.