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Pharoah Beauty Corporation manufactures cosmetic products that are sold through a network of sales agents. The agents are paid commission of 22% of sales. The income statement for the year ending December 31, 2025, is as follows.

Pharoah Beauty Corporation Income Statement For the Year Ended December 31, 2025
Sales		$76,900,000
Cost of goods sold
Variable	$30,760,000
Fixed	8,580,000	$39,340,000
Gross profit		$37,560,000
Selling and marketing expenses
Commissions	$16,918,000
Fixed costs	10,070,400	26,988,400
Operating income		$10,571,600

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 $9,228,000.

Under the current policy of using a network of sales agents, calculate the Pharoah Beauty Corporations break-even point in sales for the year 2025.

= 49,080,000

Break even point in sales dollars for the year 2025 if it hires its own sales force to replace the network of agents.

= $55,756,800

The degree of operating leverage at sales of $76,900,000 if (1) Pharoah Beauty uses sales agents, and (2) Pharaoh Beauty employs its own sales staff.

1). Pharoah Beaty uses sales agents = 2.76

2). Pharoah Beauty employs its own sales staff = 3.64

D). Calculate the estimated sales volume in sales dollars that would generate an identical net income for the year ending December 31, 2025, regardless of whether Pharoah Beauty Corporation employs its own sales staff and pays them an 10% commission or continues to use the independent network of agents. (Hint: Set up an equation, with the net income formula employing the companys own sales staff on the other side of the equation. Before solving, estimate those aspects that are the same on each side of the equation as they do not vary under the two alternatives.)

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