no sales force of ds own, rather, E reles a These agents are pad a Barbara Cheney, Pittman's centroler, has just prepared the company's badgeled income stalement fon s or re sonof 17%for all demseld sales agents to manet tspr duty aCheney Pnna nexd year The sdatement folos Sales Manufacturing expenses $ 16,600,000 $ 7,300,000 Fiued overhead 2,420,000 9,720,000 Gross margin Seling and admnistr atve expenses 6 880000 Commissions to agentr 2822,000 140.000 Fxed admiistr ative expenses 900,000 4862.000 Net operating ncome Fued interest expenses 2018,000 560,000 Income before income taxes income taes (40%) 1458.000 583 200 Net income 874800 "Prmarly depreciation on storage facities As Barbara handed he statement to Kan veco Peman s pres dent.he ormertedwent ahead and used the agents 17% commsson 'ate n completing these statements, bdeve ust earned tey refuse to handie our products nent year unless we increase he commisson rate to Thats the lsta Karl repied angriy "Those agents have been demanding more and more, and is ture they ve gone too tar now carney posstly defend a 22% connsson 'ate? They cdaim that after paying for advertising, ravel and the oher costs of promotion, theres nothing le over for proft repled Barbara I say t's just plan robbery" retorted Kart And I also say it's ime we dumped those guys and got cur own sales foroe. Can you get your peopie to work up some cost Sgures for us to look a Vieveaready worted Vern up , sad Barbara sever al companes we inw abot pay a 77% commission to their own salespeople, abng with a smal salary Of eourse we wpuld have to hande all promotion costs, too. We figure cur fxed espenses would increase by $2 822 000 per year but that wauld be more than offset by the S3 C62 000 (22%516 600 000, that we wouk, avod on agents commissons The breakdowe of the $2 822,000 cost ollows S 120,000 1.522.000 2 822.000 Saies manager Salespersons Advertising Total Super repled Karl And I noticed hat the 52 822,000 t what we're paying the agents under the Old 17% cornasion rane its even bether than that esplaned Barbara "We can athually save $85 800 a year because thats what were having to pay the auciting fanm now to check ost the agents repoets So our overall antave ots would be less P il al of these numbers together and ugV how them the executive CO-nttee tomorro " " said Karl with the approval oren corrmtlee wo can mon on th* matter mmediately 1 Compute Pittman Company's break-ever point in dolar sales for neit year assuming (Enter your answer in whole dollars and not in thousanas. Round CM ratio to 3 decimal places and final answer to the nearest delar amount) a The agents comission rate remans unthanged at t 7% b The agents commsson rate is rcrpasecto 22%
