AgroPharm Corporation manufactures pharmaceutical products that are sold through a network of external sales agents. The agents are paid a commission of 18% of revenues. AgroPharm is considering replacing the sales agents with its own salespeople, who would be paid a commission of 12% of revenues and total salaries of $7,950,000. The income statement for the year ending December 31, 2020, under the two scenarios is shown here.

Required

1. Calculate AgroPharm’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, AgroPharm uses its own salespeople, who demand a 14% 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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1 N34567 2 Home 5 Revenues 7 A Insert 6 Cost of goods sold Variable 8 Fixed 9 Gross margin 10 Marketing costs 11 12 Fixed costs 13 Operating income Commissions Page Layout B AgroPharm Corporation Income Statement Formulas с Using Sales Agents $15,750,000 5.425,000 For the Year Ended December 2020 $ 8,100,000 5,250,000 $45,000,000 Data 21,175.000 23,825,000 D Review View E Using Own Sales Force $45,000,000 $15,750,000 5.425,000 21,175,000 23,825,000 $5,400,000 13,350,000 7,950,000 13,350,000 $10.475.000 $10.475.000