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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. 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 $ 36,000,000 Sales Cost of goods sold: Variable Fixed $ 17,400,000 2,790,000 20,190,000 15,810,000 Gross margin Selling and administrative expenses: Commissions Fixed advertising expense Fixed administrative expense 6,120,000 780,000 3,500,000 10,400,000 Net operating income $ 5,410,000 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. Marston's controller estimates that the company will have to hire eight salespeople to cover the current market area, and the total annual payroll cost of these employees will be about $660,000, including fringe benefits. The salespeople will also be paid commissions of 10% of sales. Travel and entertainment expenses are expected to total about $380,000 for the year. The company will also have to hire a sales manager and support staff whose salaries and fringe benefits will come to $150,000 per year. To make up for the promotions that the independent sales agents had been running on behalf of Marston, management believes that the company's budget for fixed advertising expenses should be increased by $460,000. Required: 1. Assuming sales of $36,000,000, construct a budgeted contribution format income statement for the upcoming year for each of the following alternatives: a. The independent sales agents' commission rate remains unchanged at 17%. (Input all amounts as positive values except losses which should be indicated by a minus sign. Leave no cells blank - be certain to enter "0" wherever required. Enter your answers in thousands. Round your percentage answers to the nearest whole percent.) Sales $ % Variable expenses: (Click to select) (Click to select) $ Total variable expense % (Click to select) % Fixed expenses: (Click to select) (Click to select) (Click to select) (Click to select) Total fixed expenses (Click to select) $ b. The independent sales agents' commission rate increases to 19%. (Input all amounts as positive values except losses which should be indicated by a minus sign. Leave no cells blank - be certain to enter "0" wherever required. Enter your answers in thousands. Round your percentage answers to the nearest whole percent.) (Click to select) $ % Variable expenses: (Click to select) (Click to select) $ Total variable expense % (Click to select) % Fixed expenses: (Click to select) (Click to select) (Click to select) (Click to select) Total fixed expenses (Click to select) $ c. The company employs its own sales force. (Input all amounts as positive values except losses which should be indicated by a minus sign. Leave no cells blank - be certain to enter "0" wherever required. Enter your answers in thousands. Round your percentage answers to the nearest whole percent.) (Click to select) % Variable expenses: (Click to select) (Click to select) Total variable expense % (Click to select) % Fixed expenses: (Click to select) (Click to select) (Click to select) (Click to select) Total fixed expenses (Click to select) $ 2. Calculate Marston Corporation's break-even point in sales dollars for the upcoming year assuming the following: a. The independent sales agents' commission rate remains unchanged at 17%. (Round the CM ratio to 2 decimal places and final answer to the nearest dollar amount. Enter your answers in whole dollars and not in thousands.) Break-even point in sales dollars b. The independent sales agents' commission rate increases to 19%. (Round the CM ratio to 2 decimal places and final answer to the nearest dollar amount. Enter your answers in whole dollars and not in thousands.) Break-even point in sales dollars c. The company employs its own sales force. (Round the CM ratio to 2 decimal places and final answer to the nearest dollar amount. Enter your answers in whole dollars and not in thousands.) Break-even point in sales dollars $ 3. Refer to your answer to (1)(b) above. If the company employs its own sales force, what volume of sales would be necessary to generate the net operating income the company would realize if sales are $36,000,000 and the company continues to sell through agents (at a 19% commission rate)? (Round the CM ratio to 2 decimal places and final answer to the nearest dollar amount. Enter your answers in whole dollars and not in thousands.) Volume of sales 4. Determine the volume of sales at which net operating income would be equal regardless of whether Marston Corporation sells through agents (at a 19% commission rate) or employs its own sales force. (Round the CM ratio to 2 decimal places and final answer to the nearest dollar amount. Enter your answers in whole dollars and not in thousands.) Volume of sales $
