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 15% for all items sold. Barbara Cheney. Pittman's controller, has just prepared the company's budgeted Income statement for next year as follows Pittean Company Budgeted Income Statenent For the ver Ended Decemb-er 31 Sales 23,500,000 variable Pixed overhead 10,575,000 3,298,0ee 3 865 ,80e 9,635,000 dross margin Selling and administrative expenses Commissions to agents Pixed marketing expenses Pixed administrative expenses 3,525,0ee 164,500 2,100,eee 5,789,50e Net operating incone Fixed interest expensers tncome before incone taxes Income taxes (30%) Net income 3,845,50e 3,023,00ee 2,116,100 Primarily depreciation on storage facilities. As Barbara handed the statement to Kari Vecci, Pittrman's president. she commented, "I went ahead and used the agents, 15% 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% That's the lst 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 20% commission rate?" They clalim that after paying for advertising. travel, and the other costs of promotion, there's nothing left over for profit," replied Barbara 1 say it's Just plain robbery." retorted Karl. "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 7.5% 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 $3.525,000 per year, but that would be more than offset by the $4.700.000 (20% x $23.500,000) that we would avoid on agents' commissions The breakdown of the $3,525,000 cost follows Salaries Sales manager alespersons 146,875 81,250 Sales manager Salespersons Travel and entertainnent Advertising Total 146,875 881,25e 587,500 1,909,375 "Super," replied Karl-And I noticed that the $3.525,000 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 S108,100 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'll show them to the executive committee tomorrow.-said Karl"With the approval of the committee, we can move on the matter Immediately 1 Compute Pittman Company's break-even point in dolliar sales for next year assuming a. The agents' commission rate remains unchanged at 15% b. The agents' commission rate is increased to 20%