ces Case 5-32 (Algo) Cost Structure; Break-Even and Target Profit Analysis [LO5-4, LO5-5, LO5-6] Pittman Company is a small but growing manufacturer of telecommunications 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: Sales Pittman Company Budgeted Income Statement For the Year Ended December 31 Manufacturing expenses: Variable Fixed overhead Gross margin Selling and administrative expenses Commissions to agents $18,500,000 $8,325,000 2,590,000 10,915,000 7,585,000 2,775,000 129,500. Fixed administrative expenses 1,900,000 4,804,500 Net operating income Fixed interest expenses Income before income taxes Income taxes (30) 2,780,500 647,500 2,133,000 639,900 $ 1,493,100 Fixed marketing expenses Net income "Primarily depreciation on storage facilities. As Barbara handed the statement to Karl Vecci, Pittman'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.