BioPharm Corporation manufactures pharmaceutical products that are sold through a network of external sales agents. The agents are paid a commission of 20% of revenues. BioPharm is considering replacing the sales agents with its own salespeople, who would be paid a commission of 13% of revenues and total salaries of $ 2,240,000. The income statement for the year ending December 31, 2013, under the two scenarios is shown here.

Required
1. Calculate BioPharm’s 2013 contribution margin percentage, breakeven revenues, and degree of operating leverage under the two scenarios.
2. Describe the advantages and disadvantages of each type of sales alternative.
3. In 2014, BioPharm uses its own salespeople, who demand a 16% commission. If all other cost-behavior patterns are unchanged, how much revenue must the salespeople generate in order to earn the same operating income as in2013?

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8 BioPharm Corporation Income Statement For theYear Ended December 31, 2013 Using Sales Agents Using Own Sales Force Revenues S32,000,000 $32,000,000 t of sold Variable 12,160,000 $12,160,000 Fixed Gross margin Marketing costs 3.750,000 15,910,000 3,750,000 15,910,000 16,090,000 16,090000 S 6,400,000 S 4,160,000 Fixed costs Operating income 3.660,000 10,060.0