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Marston Corporation manufactures disposable thermometers that are sold to hospitals through a network of independent sales agents located in the United States and Canada.
Marston Corporation manufactures disposable thermometers that are sold to hospitals through a network of independent sales agents located in the United States and Canada. These sales agents sell a variety of products to hospitals in addition to Marston's disposable thermometer. The sales agents are currently paid an 17% commission on sales, and this commission rate was used when Marston's management prepared the following budgeted absorption income statement for the upcoming year. Marston Corporation Budgeted Income Statement Sales $ 39,000,000 Cost of goods sold: Variable $ 17,100,000 Fixed 2,740,000 19,840,000 Gross margin 19,160,000 Commissions Selling and administrative expenses: Fixed advertising expense Fixed administrative expense Net operating income 6,630,000 800,000 3,200,000 10,630,000 $ 8,530,000 Since the completion of the above statement, Marston's management has learned that the independent sales agents are demanding an increase in the commission rate to 19% of sales for the upcoming year. This would be the third increase in commissions demanded by the independent sales agents in five years. As a result, Marston's management has decided to investigate the possibility of hiring its own sales staff to replace the independent sales agents.
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