Since the completion of the above statement, Marston's management has learned that the independent sales agents are demanding an increase in the commission rate to 20% of sales for the upcoming year. This would be the third increase in commissions demanded by the independent sales agents in five years. As a result, Marston's management has decided to investigate the possibility of hiring its own sales staff to replace the independent sales agents.
Marston's controller estimates that the company will have to hire eight salespeople to cover the current market area, and the total annual payroll cost of these employees will be about $600,000, including fringe benefits. The salespeople will also be paid commissions of 10% of sales. Travel and entertainment expenses are expected to total about $360,000 for the year. The company will also have to hire a sales manager and support staff whose salaries and fringe benefits will come to $150,000 per year. To make up for the promotions that the independent sales agents had been running on behalf of Marston, management believes that the company's budget for fixed advertising expenses should be increased by $410,000.