This Website Has Been Moved to a New Link


Loading

Peaches and Cream 120000000

Price: $2.50


Peaches and Cream Corporation manufactures cosmetic products that are sold
through a network of sales agents. The agents are paid a commission of 16.25% of sales.
The income statement for the year ending December 31, 2014

Peaches and Cream Corporation 
Income Statement 
For the Year Ended December 31, 2014 


Sales 
 120,000,000
Cost of goods sold
Variable   58,500,000
Fixed   11,000,000  69,500,000
Gross margin   50,500,000
Selling and marketing expenses
Commissions   19,500,000
Fixed costs   10,000,000  29,500,000
Operating income   21,000,000

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
$12.0 million.

Instructions
(a) Under the current policy of using a network of sales agents, calculate the Peaches and
Cream Corporation’s break-even point in sales dollars for the year 2014.

(b) Calculate the company’s break-even point in sales dollars for the year 2014 if it hires
its own sales force to replace the network of agents.

(c) Calculate the degree of operating leverage at sales of $120 million if (1) Peaches and
Cream uses sales agents, and (2) Peaches and Cream employs its own sales staff.

(d) Calculate the estimated sales volume in sales dollars that would generate an identical
net income for the year ending December 31, 2014, regardless of whether Peaches and
Cream Corporation employs its own sales staff and pays them a 10% commission as
well as incurring additional fixed costs of $12.0 million, or continues to use the independent
network of agents.

No comments:

Post a Comment