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 Income Statement For the Year Ended December 31, 2017
| Sales |
$79,300,000 |
| Cost of goods sold |
| Variable |
$31,720,000 |
| Fixed |
8,540,000 |
40,260,000 |
| Gross margin |
$39,040,000 |
| Selling and marketing expenses |
| Commissions |
$14,274,000 |
| Fixed costs |
10,750,000 |
25,024,000 |
| Operating income |
$14,016,000 |
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 $6,344,000.