Determine the level of sales needed to achieve a desired target profit.

1. Compute Pittman Compant's break-even point in dollar sales for the next year assuming:

a. The agents' commission rate remains unchanges at 19%

b. The agents' commission rate is increased to 24%

c. The company employs its own sales force

2.. Assume that Pittman Company decides to continue selling through agents and pays the 24% commission rate. Determine the volume of sales that would be required to generate the same net income as contained in the budgeted income statement for next year.

3. Determine the volume of sales at which net income would be equal regardless of whether Pittman Company sells through agents (at a 24% commission rate) or employs its own sales force.

4. Compute the degree of operating leverage that the company would expect to have on December 31 at the end of the year assuming:

a. The agents' commission rate remains unchanged at 19%

b. The agents' commission rate is increased to 24%

c. The company employs its own sales force

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 19% for all 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: $17,200,000 $7,400,000 Variable Fixed overhead 2,500,000 9,900,000 Gross margin Selling and administrative expenses 7,300,000 3,268,000 160,000* Commissions to agents Fixed marketing expenses Fixed administrative expenses 2,000,000 5,428,000 Net operating income Fixed interest expenses $ 1,872,000 580,000 Income before income taxes Income taxes (25%) 1,292,000 323,000 Net income 969,000