Martin corporation manufactures pharmaceutical products that are sold through a

Question

Martin corporation manufactures pharmaceutical products that are sold through a network of external sales agents. The agents are paid a commission salespeople, who would he paid a commission of 10% of revenues and total salaries of $2,300,000 The Income statement for the year ending December 1 Calculate Martin's 2013 contribution margin percentage, break even revenues, and degree of operating leverage under the two scenarios 2. Describe the advantages and disadvantages at each type of sales alternative. 3 ln 14, Martin uses its own salespeople, who demand a 15% commission if all other cost, behavior patterns are unchanged how much revenue Calculate Martin's 2013 operating leverage. Using sates agents Using own sales force Describe the advantages and disadvantages of each type of sales alternative The calculations. indicate that at sales of $28,000,000. a percentage change in sales and contribution margin will result in times that percentage change in that percentage change in if martin employs its own sales staff the higher contribution margin per dollar of sales and higher fixed costs gives martin operating leverage that is. increase but risks it revenues decrease. martin also needs to consider the skill levels and incentives under the two alternatives. have more incentive compensation and hence may be more sales. On the may be more knowledgeable and skilled in selling the company's products that is the its all will be affected by the sells and by the nature of the compensation plan.

Explanation / Answer

Req. 1:

Req. 2: Using Sales Agents:

Advantages: No personal attention on employees and a part of earning to sales agents of the enhanced sales

Disadvantages: Low net inocme as high commission paid and no control on the agents. Projection of sales is difficult.

Having own Sales Force:

Advantages: Low cost of Sales persons, both salary and commission, so high net income.

Disadvantages: Keeping a great control and expense to maintain sales force with personal attention.

Req. 3)

Sales on offering 15% commission and keeping all other costs and net income same = 4200000 + 12040000 + 6425000 + 2850000 = $29,400,000

with sales agents with own sales force contribution margin (28000000 - 17640000) / 28000000 = 0.37 (28000000 - 14840000) / 28000000 = 0.47 Break Even Point Fixed Cost $6475000 / contri margin 0.37 = $17,500,000 Fixed Cost $9275000 / contri margin 0.47 = $19,734,043 Operating Leverage Contri. / Operating Income = 10360000/3885000 = 2.67 13160000/3885000 = 3.38

Related Questions

Navigate

• Browse (All)
• Browse M
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.