Case 7-55 Sales Commissions in a Wholesale Firm; Income Taxes (Appendix) (LO 7-1, 7-2, 7-4, 7-11) Niagara Falls Sporting Goods Company, a wholesale supply company, engages independent sales agents to market the company's products throughout New York and Ontario. These agents currently receive a commission of 20 percent of sales, but they are demanding an increase to 25 percent of sales made during the year ending December 31, 20x2. The controller already prepared the 20x2 budget before learning of the agents' demand for an increase in commissions. The budgeted 20x2 income statement is shown below. Assume that cost of goods sold is 100 percent variable cost. NIAGARA FALLS SPORTING GOODS COMPANY Budgeted Income Statement For the Year Ended December 31, 20x2 Sales Cost of goods sold $14,000,000 8,400,000 Gross margin Selling and administrative expenses: Commissions All other expenses (fixed) Income before taxes. Income tax (40%) Net income $ 5,600,000 $2,800,000 70,000 2,870,000 $ 2,730,000 1,092,000 $ 1,638,000 The company's sales manager, Joey Dulwich, is considering the possibility of employing full-time sales personnel. Three individuals would be required, at an estimated annual salary of $28,000 each, plus commissions of 6 percent of sales. In addition, a sales manager would be employed at a fixed annual salary of $80,000. All other fixed costs, as well as the variable cost percentages, would remain the same as the estimates in the 20x2 budgeted income statement.