Breakeven, CVP. (CM A adapted) Marston Corporation manufactures pharmaceutical products that are sold through a network of independent sales agents located in the United States and Canada. The agents are currently paid an 18% commission on sales. Marston used this percentage in preparing the following budgeted income statement for the fiscal year ending June 30, 19_4 (in thousands):

Sales $26,000 Cost of goods sold Variable Fixed $11,700 2,870 14,570 Gross margin 1 1 ,430 Marketing & administrative costs Sales commissions 4,680 Fixed marketing costs 750 Fixed administrative costs 1,850 7,280 Operating income 4,150 Fixed interest costs 650 Net income before taxes Income taxes (40%) 3,500 1,400 Net income $ 2,100 Since preparing this budgeted income statement, Marston has learned that its agents are demanding an increase in the commission rate to 23% for the upcoming year. As a result, Marston's president has decided to investigate the possibility of hiring its own sales staff in place of the network of sales agents and has asked Tom Ross, Marston's controller, to gather information on the costs associated with this alternative.

Ross estimates that Marston will have to hire eight salespeople to cover the current market area. The annual payroll cost of each of these employees will average $80,000, including fringe benefit costs. Travel and entertainment costs are expected to total $600,000 for the year, and the annual cost of a sales manager and sales secretary will be $150,000. In addition to their salary, the eight salespeople will each earn commissions at the rate of 10% on the first $2 million in sales and 15% on all sales over $2 million. Ross expects that all eight salespeople will exceed the S2 million mark and that sales will be at the level originally projected. Ross believes that Marston should also increase its marketing budget by $500,000.

Required 1. Calculate Marston Corporation's breakeven point in sales dollars for the fiscal year ending June 30, 1 94 if the company hires its own sales force and increases its marketing costs.

2. If Marston Corporation continues to sell through its network of sales agents and pays the higher commission rate, determine what the dollar sales for the fiscal year ending June 30, 19_4 wovld have tc be to generate the same net income as projected in the budgeted income statement presentee! ibove.