AgroPharm Corporation manufactures pharmaceutical products that are sold through a network of external sales agents. The agents
Question:
AgroPharm Corporation manufactures pharmaceutical products that are sold through a network of external sales agents. The agents are paid a commission of 18% of revenues. AgroPharm is considering replacing the sales agents with its own salespeople, 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, 2017, under the two scenarios is shown here.
1. Calculate AgroPharm’s 2017 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 2018, AgroPharm uses its own salespeople, who demand a 14% 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 in 2017?
Step by Step Answer:
Horngrens Cost Accounting A Managerial Emphasis
ISBN: 9781292211541
16th Global Edition
Authors: Srikant Datar, Madhav Rajan