Clculate the degree of operating leverage at sales of

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Reference no: EM13583249

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.

Reference no: EM13583249

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