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Pittman Company Budgeted Income Statement For the Year Ended December 31 Sales $ 16,000,000 Manufacturing expenses: Variable $7,200,000 2,340,000 9,540,000 6,460,000 Fixed overhead Gross margin Selling and administrative expenses: Commissions to agents Fixed marketing expenses Fixed administrative expenses Net operating income 2,400,000 120,000 1,800,000 4,320,000 2,140,000 Fixed interest expenses 540,000 Income before income taxes 1,600,000 Income taxes (30%) 480,000 Net income $ 1,120,000 Required: 1. Compute Pittman Company's break-even point in dollar sales for next year assuming a. The agents' commission rate remains unchanged at 15% b. The agents' commission rate is increased to 20% c. The company employs its own sales force 2. 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. 3. 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. 4. Compute the degree of operating leverage that the company would expect to have at the end of next year assuming: #. The agents commission rate remains unchanged at 15% b. The agents commission rate is increased to 20% c. The company employs its own sales force Use income before income taxes in your operating leverage computation 5. Based on the data in (1) through (4) above, make a recommendation as to whether the company should continue to use sales agents (at a 20% commission rate) or employ its own sales force. Give reasons for your answer. (CMA, adapted)