#3 is correct and #4a and b are correct. Need all others answered.
Pittman Company is a small but growing manufacturer of telecommunications equipment. The company has no sales force of its own rather it eles completely n independent sales agents to market its products These agents are paid a sales commisson of 1 3% for a items sold Barbara Cheney. Pittman's controller, has just prepared the company's budgeted income statement for next year. The statement follows Pittman Company Budgeted Income Statement For the Year Ended December 31 Sales Manufacturing expenses Variable Fixed overhead Gross margin Selling and administrative expenses Commissions to agents Fixed marketing expenses Fixed administrative expenses Net operating income Fixed interest expenses Income before income taxes Income taxes (40%) Net income $18,100,000 $7,550,000 2,620,000 10,170,000 2,353,000 190,000 2,150,000 4,693.000 3,237,000 10,000 2,627,000 1,050,800 $ 1,576,200 Primarily depreciation on storage facilities. As Barbara handed the statement to Karl Vecci, Pittman's president, she commented." went ahead and used the agents' 13% commission rate in completing these statements, but we've just learned that they refuse to handle our products next year unless we increase the commission rate to 18% That's the last straw, Karl replied angrily. 'Those agents have been demanding more and more, and this time they've gone too far. How can they possibly defend a 18% commission rate?" They claim that after paying for advertising, travel, and the other costs of promotion, there's nothing left over for profit," replied Barbara. I say it's just plain robbery," retorted Karl. And I also say it's time we dumped those guys and got our own sales force. Can you get your people to work up some cost figures for us to look at? "We've already worked them up," said Barbara . Several companies we know about pay a 8 2% commission to their own salespeople. along with a small salary. Of course, we would have to handle all promotion costs, too. We figure our fixed expenses would increase by $2.353,000 per year, but that would be more than offset by the S3258,000 (1896 x S 18.100,000) that we would avoid on agents' The breakdown of the $2,353,000 cost follows Sales manager Salespersons Travel and entertainment S 170,000 950,000 680,000 553,000 $2.353,000 Total . Super." replied Karl -And noticed that the S2,353,000 is just what we're paying the agents under the old 13% commission rate It's even better than that" explained Barbara. We can actually save $110,000 a year because that's what we're having to pay the auditing firm now to check out the agents' reports. So our overall administrative expenses would be less. Pull all of these numbers together and we'll show them to the executive committee tomorrow, said Karl. With the approval of the committee, we can move on the matter immediately. Required: 1. Compute Pittman Company's break-even point in dollar sales for next year assuming: (Enter your answer in whole dollars and not in thousands. Round CM ratio to 3 decimal places and final answers to the nearest dollar amount.)
