Grape, LLC manufactures time machines that are sold through a network of independent sales agents. The agents are paid a commission of 18% of revenues. The CEO of Grape, LLC, John Water, is considering replacing the independent sales agents with its own salespeople, who would be paid a commission of 14% of revenues and total annual salaries of $3,000,000. The operating income projections for the year ending December 31, 202X under these two mutually exclusive options are shown below:

Grape, LLC
Operating Income Projections
For the year ended December 31, 202X
	Using independent sales agents		Using own sales force
Revenues		$25,000,000		$25,000,000
Cost of goods sold:
Variable	$11,000,000		$11,000,000
Fixed	2,500,000	13,500,000	2,500,000	13,500,000
Gross margin		$11,500,000		$11,500,000
Marketing costs:
Commissionsa	$4,500,000		$3,500,000
Fixed costs	3,120,000	7,620,000	6,120,000b	9,620,000
Operating income		$3,880,000		$1,880,000

^a Sales commissions of 18% of revenues using independent sales agents; sales commissions of 14% of revenues using own sales force.

^b Total annual salaries of $3,000,000 are included here.

Required:

1. The above operating income projections emphasize Gross Margin. Re-do the entire operating income statements for both options using the Contribution Margin format (i.e., Contribution margin = Revenues Variable Costs).

2. Using your Contribution Margin income statements, calculate the following operating projections for each of the two options for 202X:
3. 1. Contribution margin percentage
   2. Breakeven revenues
   3. Operating leverage

3. Assume that in 202X Grape, LLC decides to use its own sales force, who would be compensated as described above (i.e., a commission of 14% of revenues and total annual salaries of $3,000,000). If all other costs and cost behavior patterns are unchanged, then how much revenue must the own sales force generate in order to earn the same operating income projected for 1985 using the independent sales agents (i.e., $3,880,000)?