Kindle, Inc. manufactures cosmetic products that are sold through a network of sales agents. The agents are paid a commission of 12.5% of sales. The income statement for the year ending December 31, 2013 is as follows.
|
Sales $130,000
|
|
Cost of goods sold
|
|
Variable $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 income 23,800
|
|
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 $13 million.
(A)Under the current policy of using a network of sales agents, calculate Kindle Inc%u2019s break %u2013even point in sales dollars for the year 2013.
(B)Calculate the company%u2019s break-even point in sales dollars for the year 2013 if it hires its own sales force to replace the network of agents.
(C)Calculate the degree of operating leverage at sales of $ 130,000 if (1) Kindle, Inc. uses sales agents and (2) Kindle inc. employs its own sales staff.