Pittman Company is a small but growing manufacturer of telecommunications equipment. The company has no sales force of its own: rather, it rehies completely on independent sales agents to market its products. These agents are paid a sales commission of 15% for all thems sold. Barbara Cheney. Pittman's controller, has just prepared the company's budgeted income statement for next year as follows: As Barbara handed the statement to Karl Vecci, Pitman's president, she commented. 7 went aheod and used the agents 15% commlssion rate in compieting these statements, but we-Ve just leamed that they refuse to handle our products next yoar uniess we increase the commission rate to 20% Thot' the last strow," Karl replied angelly. Those agents have been demanding more and more, and thin time theyve gone too fac. How can they possibly defend a 20% commilesion rate?" 'Thev claim that after pavine for odvertisino. frevel and the other coats of oromotion, there's nothung ier pyer for profit,' reolied. "I say it's just plain robbery, retorted Karl. "And l 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 their 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 $2,850,000 per year, but that would be more than offset by the $3,800,000(20%$19,000,000) that we would avoid on agents' commissions." The breakdown of the $2,850,000 cost follows: "Super," replied Kari, "And I noticed that the $2,850,000 equals what we're paying the agents under the old 159 iscommission rate." "its even better than that, explained Barbara. "We can actually save $87,400 a year because that's what we're paying our auditors to check out the ogents' reports. So our overall administrative expenses would be less." "Pull all of these numbers together and we'l show them to the executive committee tomorrow," said Karl. "With the opproval of the committee, we con move on the matter immediately." Required: 1. Compute Pittinan Company's break-even point in dollar sales for next year assuming: 5. The agents' commission rate remains unchanged at 15% il. b. The agents' commission rate is increased to 20%. C. The company employs ats own sales force. 2. Assume that Pittman Company decides to continue seling through agents and poys the 20s commission rate. Dotermine the dollat 2. Assume that Pittiman 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 selis through agents (at a 209 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: 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. Use income before income taxes in your operating leverage computation. Complete this question by entering your answers in the tabs below. Compute Muman Companrys bmakerevon point in dollar sales for next year assuming: (Roind cM ratio to 3 decimat places and final aniwens to tie nearest doflar amountu Pittman Company is a small but growing manufacturer of telecommunications equipment. The company has no sales force of its own: rather, it rehies completely on independent sales agents to market its products. These agents are paid a sales commission of 15% for all thems sold. Barbara Cheney. Pittman's controller, has just prepared the company's budgeted income statement for next year as follows: As Barbara handed the statement to Karl Vecci, Pitman's president, she commented. 7 went aheod and used the agents 15% commlssion rate in compieting these statements, but we-Ve just leamed that they refuse to handle our products next yoar uniess we increase the commission rate to 20% Thot' the last strow," Karl replied angelly. Those agents have been demanding more and more, and thin time theyve gone too fac. How can they possibly defend a 20% commilesion rate?" 'Thev claim that after pavine for odvertisino. frevel and the other coats of oromotion, there's nothung ier pyer for profit,' reolied. "I say it's just plain robbery, retorted Karl. "And l 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 their 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 $2,850,000 per year, but that would be more than offset by the $3,800,000(20%$19,000,000) that we would avoid on agents' commissions." The breakdown of the $2,850,000 cost follows: "Super," replied Kari, "And I noticed that the $2,850,000 equals what we're paying the agents under the old 159 iscommission rate." "its even better than that, explained Barbara. "We can actually save $87,400 a year because that's what we're paying our auditors to check out the ogents' reports. So our overall administrative expenses would be less." "Pull all of these numbers together and we'l show them to the executive committee tomorrow," said Karl. "With the opproval of the committee, we con move on the matter immediately." Required: 1. Compute Pittinan Company's break-even point in dollar sales for next year assuming: 5. The agents' commission rate remains unchanged at 15% il. b. The agents' commission rate is increased to 20%. C. The company employs ats own sales force. 2. Assume that Pittman Company decides to continue seling through agents and poys the 20s commission rate. Dotermine the dollat 2. Assume that Pittiman 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 selis through agents (at a 209 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: 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. Use income before income taxes in your operating leverage computation. Complete this question by entering your answers in the tabs below. Compute Muman Companrys bmakerevon point in dollar sales for next year assuming: (Roind cM ratio to 3 decimat places and final aniwens to tie nearest doflar amountu