A water machine company is choosing between using an external sales force or employing its own sales force. Using the computations below write a memo discussing the pros and cons of the options and which one you think the company should use. Please explain your answer.

	15% Commission	20% Commission	Own Sales Force
Sales	$ 16,000	100%	$ 16,000	100%	$ 16,000.00	100.0%
Variable expenses:
Manufacturing	7,200		7,200		7,200.00
Commissions (15%, 20%, 7.5%)	2,400		3,200		1,200.00
Total variable expenses	9,600	60%	10,400	65%	8,400.00	52.5%
Contribution margin	6,400	40%	5,600	35%	7,600.00	47.5%
Fixed expenses:
Manufacturing overhead	2,340		2,340		2,340.00
Marketing	120		120		2,520.00*
Administrative	1,800		1,800		1,725.00**
Interest	540		540		540.00
Total fixed expenses	4,800		4,800		7,125.00
Income before income taxes	1,600		800		475.00
Income taxes (30%)	480		240		142.50
Net income	$ 1,120		$ 560		$ 332.50

	15% Commission	20% Commission	Own Sales Force
Contribution margin	$ 6,400,000	$ 5,600,000	$ 7,600,000
Income before taxes	$ 1,600,000	$ 800,000	$ 475,000
Degree of operating leverage	4	7	16