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 $45,000,000 Using Own Group of students Revenues $45,000,000 Cost of Goods Sold Variable $15,750,000 $15,750,000 $5.425,000 Fixed $21,175.000 $5,425,000 $21,175,000 Gross Margin Marketing Costs Commissions Fixed Costs Operating Income $23,825,000 $23,825,000 $8,100,000 S5,400,000 S5,250,000 $13,350,000 $7,950,000 $13,350,000 $10,475,000 $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 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 l6% commission. If all other cost-behaviour patterns are unchanged, how much revenue must the students generate in order to earn the same operating income as in 2020?
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 $45,000,000 Using Own Group of students Revenues $45,000,000 Cost of Goods Sold Variable $15,750,000 $15,750,000 $5.425,000 Fixed $21,175.000 $5,425,000 $21,175,000 Gross Margin Marketing Costs Commissions Fixed Costs Operating Income $23,825,000 $23,825,000 $8,100,000 S5,400,000 S5,250,000 $13,350,000 $7,950,000 $13,350,000 $10,475,000 $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 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 l6% commission. If all other cost-behaviour patterns are unchanged, how much revenue must the students generate in order to earn the same operating income as in 2020?
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 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
Revenues
$45,000,000
$45,000,000
Cost of Goods Sold
Variable
$15,750,000
$15,750,000
$5,425,000
Fixed
$5,425,000
$21,175,000
$21,175,000
Gross Margin
Marketing Costs
$23,825,000
$23,825,000
Commissions
$8,100,000
$5,400,000
Fixed Costs
Operating Income
$5,250,000
$13,350,000
S7,950,000
$13,350,000
$10,475,000
$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 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 earn the same operating income as in 2020?
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