Help please!
209 PM Sun Nov 18 12.50 points Pittman Company is a small but growing manufacturer of it relies oompletely on independent sales agents to market its products. These agents are paid a sales commission of 14% for all items sold. Barbara Cheney, Pittman's controller, has just prepared the company's budgeted income statement for next year. The statement follows s equipment. The company has no sales force of its own; rather Pitman Company Budgeted Income Statement For the Year Ended December 31 Sales $21.100,000 Variablen xpenses: 8,050,000 Fixed overhead Gross margin Selling and administrative expenses: 10.030,000 2.954,000 290,000 Fixed marketing expenses Fixed administrative expenses Net operabng income Fixed interest expenses Income before income taxes income taxes (40%) 5894.00 136,000 3.426,000 1-370,400 $ 2.055,600 Primarily depreciation on storage facilities As Barbara handed the statement to Karl Wecci, Pittman's president, she commented, "I went ahead and used the agents-14% commission rate in completing these statements, but we've just leamed that they refuse to handle our products next year unless we increase the commission rate to 19% Thar'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 19% commission rate?" They claim that after paying for advertising, travel, and the other costs of promotion, there's nothing left over for profit," replied Barbara. 1say it's just plain robbery," retorted Karl. And I also say is 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," said Barbara "Several companies we know about pay a 8.1% commission to their own salespeople, along with a small salary. Of course, we would have to handle all promotion costs, too. We Sigure our fixed expenses would increase by $2.954,000 per year, but that would be more tan offset by te $4,009.000 (19%$21,100,000) that we would avoid on agents' commissions The breakdown of the $2.954.000 cost follows: Sales manager 270,000 1,450,000 1,080,000 Travel and entertainment 2,954,000 "Super," replied Karl. "And noticed that the $2,954,000 is just what we're paying the agents under the old 14% commission rate.' Ws even better han that,explained Barbara. "We can actually save $160,000 a year because thats what we're having to pay the auditing firm now to check out the agents reports. So our overal administrative expenses would be less. Pull all of these numbers together and we'll show them to the executive committee tomorrow, said Karl. "With the approval of the committee, we can move on the matter immediately Required: 1. Compute Pittman Company's break-even point in dollar sales for next year assuming (Enter your answer in whole dollars and not in thousands. Round CM ratio to 3 decimal places and final answers to the nearest dollar amount) a The agents' commission rate remains unchanged at 14%
