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Metz Corporation manufactures housewares products that are sold through a network of external sales agents. The agents are paid a commission of 19% of revenues.
Metz Corporation manufactures housewares products that are sold through a network of external sales agents. The agents are paid a commission of 19% of revenues. Metz is considering replacing the sales agents with its own salespeople, who would be paid a commission of 10% of revenues and total salaries of $2,610,000. The income statement for the year ending December 31, 2020, under the two scenarios is shown here. (Click the icon to view the income statements.) Read the requirements. Requirement 1. Calculate Metz's 2020 contribution margin percentage, breakeven revenues, and degree of operating leverage under the two scenarios. Begin by calculating Metz's 2020 contribution margin percentage. Determine the formula, then enter the amounts to calculate the percentage. (Round the percentage to the nearest whole percent.) Contribution Contribution margin : Revenues II margin % = = $ II % Using Sales Agents Using Own Sales Force 29,000,000 29,000,000 1. $ II % Metz Corporation Income Statement For the Year Ended December 31, 2020 Using Sales Agents Using Own Sales Force Revenues $29,000,000 $ 29,000,000 Cost of goods sold Variable $ 13,920,000 $ 13,920,000 Fixed 2,850,000 16,770,000 2,850,000 16,770,000 Gross Margin 12,230,000 12,230,000 Marketing costs Commissions 5,510,000 $ 2,900,000 Fixed costs 2,793,000 8,303,000 5,403,000 8,303,000 $ 3,927,000 $ 3,927,000 Operating income 1. Calculate Metz's 2020 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 2021, Metz uses its own salespeople, who demand a 15% 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 2020
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