Marston Corporation manufactures pharmaceutical products that are sold through a network of sales agents. The agents are paid a commission of 18% of sales. The income statement for the year ending December 31, 2011, under two scenarios, is as follows:
Marston is considering hiring its own sales staff to replace the network of agents. Marston will pay its salespeople a commission of 10% and incur additional fixed costs of $2,080,000.
1. Calculate Marston Corporation’s 2011 contribution margin percentage, breakeven revenues, and degree of operating leverage under each of the two scenarios.
2. Describe the advantages and disadvantages of each type of sales alternative.
3. In 2012, Marston uses its own salespeople who demand a 15% commission. If all other cost behaviour patterns are unchanged, how much revenue must the salespeople generate in order to earn the same operating income as in 2011?

  • CreatedJuly 31, 2015
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