Pitman 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 tems sold. Barbara Cheney, Pittman's controller, has just prepared the company's budgeted income statement for next year as follows Pittran Company udgeted Incone Seatenent For the Year Ended Decenber 21,500,000 Sales Kanufacturing expenses $9,675,000 Fixed overhead 010,00012,685,00 Gross nargin selling and adainistrative expenses 3,225,000 Commissions to agentS Pixed marketing expenses rixed administrative expenses Net operating incone Incone taxes (30t) Net incone 1,864,900 Primarily depreciation on storage facilities As Barbara handed the statement to Karl Vecci, Pittman's president, 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%. she commented, "I went ahead and used the agents' 15% That's the last straw," Karl replied angrily. "Those How can they possibly defend a 20% commission rate?" agents have been demanding more and more, and this time they've gone too far They cliaim that after paying for advertising, travel, and the other costs of promotion, there's nothing left over Barbara. promotion, there's nothing left over for profit, replied l slso say it's time we dumped those guys and got our own sales force. Can you get time we I say it's just pisin robbery." retorted Kart "And I Prev 1of Next 0 8 1 say it's just plain robbery," retorted Kart. "And I also say it's 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 75% commission to ther own salespeople, along with a small salary. Of course, we would have to handle all promotion costs, too. We figure our fixed expenses would increase by 3,225,000 per year, but that would be more than dffset by the $4,300,000 (20% $21,500,000) that we would avoid on agents commissions The breakdown of the $3,225,000 cost follows: Salaries Sales manager Salespersons 134,375 06,250 537,500 Travel and entertainment dvertiain 3,225,000 "Super , repled Kari. "And I noticed that the $3,225,000 equals what we're paying the agents under the old 15% co m isso rate." it's even better than that, explained Barbara. "We can actually save $98,900 a year because that's what we're paying our auditors to check out the agents' reports. So our overall administrative expenses would be less. "Pull all of these numbers together and we show them to the executive committee tomorrow.. said Karl, "With the approval of the commintee, we can move on the matter immediately 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 seling through agents and pays the 20% commission rate Dedemineme doll sales that would be required to generate the same net income as contained in the budgeted income statement for next year 8 9 Total 3,225,000 Super," replied Karl. And I noticed that the $3.225,000 equals what we're paying the agents under the old 15% commission rate.? It's even better than that explained Barbara. "We can actually save $98,900 a year because that's what we're paying our auditors to check out the agents' reports. So our overall admin istrative expenses would be less. TPullall f these numbers together ano the executive comnitte tomorrow. said Kar."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: 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 sales that would be required to generate to continue selling through agents and pays the 20% commission rate. Determine the dollar the same net income as contained in the budgeted income statement for next year the dolar sales at which net income would be equal regardless of whether Pitman Company sells through agents (at a 20% commission rate) or employs its own sales force. ee of operating leverage that the company would expect to have at the end of next year assuming: operating 4. Compute the degree 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 Complete this question by entering your answers in the tabs below Required 1 Required 2 Required 3 Required 4 Prey 1of Next 868 7 8 9 0