Question
partial credit, P3-48 (similar to) Marston Corporation manufactures housewares products that are sold through a network of external sales agents. The agents are paid a
partial credit, P3-48 (similar to) Marston Corporation manufactures housewares products that are sold through a network of external sales agents. The agents are paid a commission of 19% of revenues. Marston 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 comma 520 comma 000. The income statement for the year ending December 31, 2017, under the two scenarios is shown here. Marston Corporation Income Statement For the Year Ended December 31, 2017 Using Sales Agents Using Own Sales Force Revenues $28,000,000 $28,000,000 Cost of goods sold Variable $13,160,000 $13,160,000 Fixed 3,170,000 16,330,000 3,170,000 16,330,000 Gross Margin 11,670,000 11,670,000 Marketing costs Commissions $5,320,000 $2,800,000 Fixed costs 2,644,000 7,964,000 5,164,000 7,964,000 Operating income $3,706,000 $3,706,000 Calculate Marston's 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, Marston 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 2017?
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