Assume that Pittman Company decides to continue selling through agents and pays the 20% commission rate. Determine the dollar sales that would be required to generate the same net income as contained in the budgeted income statement for next year.

Also determine the dollar sales at which net income would be equal regardless of whether Pittman Company sells through agents (at a 20% commission rate) or employs its own sales force

PIttman Company is a small but growing manufacturer of telecommunicatlons equipment. The company has no sales force of its own; rather, it relies completely on Independent sales agents to market its products. These agents are paid a sales commission of 15% for all Items sold. Barbara Cheney, Pittman's controller, has Just prepared the company's budgeted income statement for next year as follows: "Primarily depreclation on storage facilitles. As Barbara handed the statement to Karl Veccl, Plttman's president, she commented, "I went ahead and used the agents" 15\% 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 20%." "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 20% commission rate?" "They clalm that after paying for advertising, travel, and the other costs of promotlon, 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," sald Barbara. "Several companles we know about pay a 7.5% 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 $3,300,000 per year, but that would be more than offset by the $4,400,000(20%$22,000,000) that we would avoid on agents' commissions." The breakdown of the $3,300,000 cost follows: "Super," replied Karl. "And I notlced that the $3,300,000 equals what we're paying the agents under the old 15% commission rate." "It's even better than that," explained Barbara. "We can actually save \$101,200 a year because that's what we"re paylng our auditors to check out the agents' reports. So our overall administratlve expenses would be less." "Pull all of these numbers together and we'll show them to the executlve committee tomorrow," sald Karl. "With the approval of the committee, we can move on the matter Immedlately