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 statement of comprehensive income for the year ending December 31, 2014, 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.
Required
1. Calculate Marston Corporation's 2014 contribution margin percentage, breakeven revenues, and degree of operating leverage under each of the two scenarios. (You will first have to recast the 2014 statement of comprehensive income assuming Marston had hired its own sales staff.)
2. Describe the advantages and disadvantages of each type of sales alternative.
3. In 2015, 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 2014?

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Marston Corporation Statement of Comprehensive Income for the Year Ending December 31, 2014 Using Sales Agents Using Own Sales Force Sales $26,000,000 $26,000,000 Cost of goods sold Variable $11,700,000 2,870,000 S11,700,000 2,870,000 Fixed 14,570,000 11,430,000 14,570,000 11,430,000 Gross margin Marketing costs Commissions 4,680,000 3,420,000 2,600,000 5,500,000 Fixed costs 8,100,000 $3,330,000 8,100,000 $3,330,000 Operating income