USEK Medical School manufactures the COVID19 Vaccines that are sold through contracted distributors. Those distributors are paid a commission of 18% of revenues. USEK Medical School is considering replacing the contracted distributors with its own group of students, who would be paid a commission of 12% of revenues and total salaries of $7,950,000. The income statement for the year ending December 31, 2020, under the two scenarios is shown here. USEK Medical School Income Statement For the Year Ended December 31, 2020 Using contracted Distributors Using Own Group of students $45,000,000 Revenues Cost of Goods Sold $45,000,000 $15,750,000 $5,425,000 S15,750,000 $21,175,000 S5,425,000 $23,825,000 Variable Fixed $21,175,000 $23,825,000 Gross Margin Marketing Costs Commissions Fixed Costs Operating Income S8,100,000 S5,250,000 S5,400,000 $13.350.000 $7.950.000 $10,475,000 $13.350,000 $10,475,000 Required: 1. Calculate USEK Medical School's 2020 contribution margin percentage, breakeven revenues, and degree of operating leverage under the two scenarios. 2. If CM(u) is $52.43 under the first scenario, and $45 under the second scenario, find the breakeven point in quantity, the total quantity sold, the selling price per unit, and the variable cost per unit under both scenarios. 3. Describe the advantages and disadvantages of cach type of sales alternative. Build your answers based on the effect of the DOL on the Operating Income under both scenarios with: a. 10% increase in sales b. 10% decrease in sales Your interpretation should be accompanied with the detailed calculation.
USEK Medical School manufactures the COVID19 Vaccines that are sold through contracted distributors. Those distributors are paid a commission of 18% of revenues. USEK Medical School is considering replacing the contracted distributors with its own group of students, who would be paid a commission of 12% of revenues and total salaries of $7,950,000. The income statement for the year ending December 31, 2020, under the two scenarios is shown here. USEK Medical School Income Statement For the Year Ended December 31, 2020 Using contracted Distributors Using Own Group of students $45,000,000 Revenues Cost of Goods Sold $45,000,000 $15,750,000 $5,425,000 S15,750,000 $21,175,000 S5,425,000 $23,825,000 Variable Fixed $21,175,000 $23,825,000 Gross Margin Marketing Costs Commissions Fixed Costs Operating Income S8,100,000 S5,250,000 S5,400,000 $13.350.000 $7.950.000 $10,475,000 $13.350,000 $10,475,000 Required: 1. Calculate USEK Medical School's 2020 contribution margin percentage, breakeven revenues, and degree of operating leverage under the two scenarios. 2. If CM(u) is $52.43 under the first scenario, and $45 under the second scenario, find the breakeven point in quantity, the total quantity sold, the selling price per unit, and the variable cost per unit under both scenarios. 3. Describe the advantages and disadvantages of cach type of sales alternative. Build your answers based on the effect of the DOL on the Operating Income under both scenarios with: a. 10% increase in sales b. 10% decrease in sales Your interpretation should be accompanied with the detailed calculation.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:USEK Medical School manufactures the COVID19 Vaccines that are sold through contracted
distributors.
Those distributors are paid a commission of 18% of revenues.
USEK Medical Sechool is considering replacing the contracted distributors with its own group
of students, who would be paid a commission of 12% of revenues and total salaries of
$7,950,000.
The income statement for the year ending December 31, 2020, under the two scenarios is
shown here.
USEK Medical School
Income Statement
For the Year Ended December 31, 2020
Using contracted Distributors Using Own Group of students
$45,000,000
Revenues
Cost of Goods Sold
$45,000,000
Variable
S15,750,000
$5,425,000
S15.750,000
$21,175,000 S5,425,000
$23,825,000
Fixed
$21,175,000
Gross Margin
Marketing Costs
Commissions
Fixed Costs
Operating Income
$23,825,000
S8,100,000
$5.250.000
S5,400,000
$13.350.000 $7.950.000
S13.350,000
$10,475,000
S10,475,000
Required:
1. Calculate USEK Medical School's 2020 contribution margin percentage, breakeven
revenues, and degree of operating leverage under the two scenarios.
2. If CM(u) is $52.43 under the first scenario, and $45 under the second scenario, find the
breakeven point in quantity, the total quantity sold, the selling price per unit, and the
variable cost per unit under both scenarios.
3. Describe the advantages and disadvantages of each type of sales alternative.
Build your answers based on the effect of the DOL on the Operating Income under both
scenarios with:
a. 10% increase in sales
b. 10% decrease in sales
Your interpretation should be accompanied with the detailed calculation.
4. In 2021, USEK Medical School uses its own salespeople, who demand a 16%
commission. If all other cost-behaviour patterns are unchanged, how much revenue must
the students generate in order to eam the same operating income as in 2020?
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