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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
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 20% for all items sold. Cheney, Pittman's controller, has just prepared the company's budgeted income statement for next year. The statement follows: Pittman Company Budgeted Income Statement For the Year Ended December 31 Sales 20,200,000 Manufacturing expenses: 7,900,000 Variable Fixed overhead 2,900,000 10.800.000 9,400,000 Gross margin Selling and administrative expenses: 4,040,000 Commissions to agents Fixed marketing expenses 260,000 Fixed administrative expenses 2,500,000 6.800.000 2,600,000 Net operating income 680,000 Fixed interest expenses 1,920,000 Income before income taxes 480,000 Income taxes (25%) Net income 1,440,000 "Primarily depreciation on storage facilities
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