Fabacan Corp., is a small but growing manufacturer of telecommunications equipment. The company relies completely on independent sales agents to market its products. These agents are paid a sales commission of 20% of sales. All the following data are in thousands of dollars. The companys budgeted income statement appears below:

The company is considering the possibility of employing its own salespersons. Eight individuals would be required, at the total fixed salary of $600 for these employees, plus commissions of 7.5% of sales. In addition, a sales manager would be employed at a fixed salary of $100. The total fixed travel and advertising expenses are expected to be $1,625.

Required: a) Compute the break-even point in sales dollars based upon the company's budgeted income statement, assuming that the company continues to use independent sales agents. b) Compute the break-even point in sales dollars, assuming that the company employs its own salespersons. c) Compute the sales dollars that would be required to generate the same net income regardless of whether the company employs its own salespersons or continues to use independent sales agents. d) Compute the degree of operating leverage: (i) assuming that the company continues to use independent sales agents; (ii) assuming that the company employs its own salespersons. e) Make a recommendation as to whether the company should continue to use independent sales agents or employ its own sales force. Give reasons for your answer.

$16,000 Budgeted Income Statement of Fabacan Corp. Sales Variable expenses: Cost of goods sold $7,200 Commissions 3,200 Contribution margin Fixed expenses Net income 10,400 $5,600 $4,800 $800