(CMA, adapted) 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 AgroPharms 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?

Home Insert Page Layout Formulas Data Review View A B C D E 1 AgroPharm Corporation 2 Income Statement 3 For the Year Ended December 31, 2017 4 Using Sales Agents Using Own Sales Force 5 Revenues $45,000,000 $45,000,000 6 Cost of goods sold 7 Variable $15,750,000 $15,750,000 Fixed 5,425,000 21,175,000 5,425,000 21,175,000 9 Gross margin $23,825,000 $23,825,000 10 Marketing costs 11 Commissions $ 8,100,000 $ 5,400,000 12 Fixed costs 5,250,000 13,350,000 7,950,000 13,350,000 13 Operating income $10.475.000 $10.475.000 8