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 income for the year ending December 31, 2019, 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 Corpora tion's 2019 contribution margin percentage, breakeven revenues, and degree of operating leverage under each of the two scenarios. (You will first have to recast the 2019 statement of income assuming Marston had hired its own sales staff.)

2. Describe the advantages and disadvantages of each type of sales alternative.

3. In 2020, 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 2019?

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Marston Corporation Statement of Income for the Year Ending December 31, 2019 Using Own Sales Force $26,000,000 Using Sales Agents Sales $26,000,000 Cost of goods sold $11,700,000 $11,700,000 Variable 2,870,000 14,570,000 14,570,000 Fixed 2,870,000 Gross margin 11,430,000 11,430,000 Marketing costs Commissions 4,680,000 2,600,000 Fixed costs 3,420,000 8,100,000 5,500,000 8,100,000 $ 3,330,000 $ 3,330,000 Operating income