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Calculate the degree of operating leverage at sales of $79,500,000 if (1) Swifty Beauty uses...

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Accounting

imageCalculate the degree of operating leverage at sales of $79,500,000 if (1) Swifty Beauty uses sales agents, and (2) Swifty Beauty employs its own sales staff. (Round answers to 2 decimal places, e.g. 1.25.)

Degree of operating leverage
(1) Swifty Beauty uses sales agents
(2) Swifty Beauty employs its own sales staff
Swifty Beauty Corporation manufactures cosmetic products that are sold through a network of sales agents. The agents are paid a commission of 20% of sales. The income statement for the year ending December 31, 2020, is as follows. SWIFTY BEAUTY CORPORATION Income Statement For the Year Ended December 31, 2020 Sales $79,500,000 Cost of goods sold Variable $33,390,000 Fixed 8,670,000 42,060,000 Gross margin $37,440,000 Selling and marketing expenses Commissions $15,900,000 Fixed costs 10,159,000 26,059,000 Operating income $11,381,000 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 $9,540,000

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