Question

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, 2019, is as follow.

KINDLE, INC. Income Statement Year Ending December 31, 2019
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 $13,000.

Under the current policy of using a network of sales agents, calculate Kindle, Inc.'s break-even point in sales dollars for the year 2019. (Round contribution margin answer to 3 decimal places, e.g. 52.143. Round final answer to 0 decimal places, e.g. 1525.)

Break-even point

$

Calculate the company's break-even point in sales dollars for the year 2019 if it hires its own sales force to replace the network of agents. (Round contribution margin answer to 2 decimal places, e.g. 52.13. Round final answer to 0 decimal places, e.g. 1525.)

Break-even point

$

Calculate the degree of operating leverage at sales of $13,000 if (1) Kindle, Inc. uses sales agents, and (2) Kindle, Inc. employs its own sales staff. (Round answers to 2 decimal places, e.g. 15.25.)

		Operating leverage
Kindle, Inc. uses sales agents
Kindle, Inc. employs its own sales staff

Answer 1

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