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, 2017, is as follows.
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, 2017, is as follows.
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BONITA BEAUTY CORPORATION
Income Statement For the Year Ended December 31, 2017 |
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| Sales | $77,400,000 | |||
| Cost of goods sold | ||||
| Variable | $37,152,000 | |||
| Fixed | 8,660,000 | 45,812,000 | ||
| Gross margin | $31,588,000 | |||
| Selling and marketing expenses | ||||
| Commissions | $13,932,000 | |||
| Fixed costs | 10,800,000 | 24,732,000 | ||
| Operating income | $6,856,000 | |||
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 $7,740,000.
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