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: Sales Pittman Company Budgeted Income Statement For the Year Ended December 31 Manufacturing expenses: Variable Fixed overhead $ 16,500,000 $ 7,425,000 2,310,000 9,735,000 6,765,000 Gross margin Selling and administrative expenses: Commissions to agents Fixed marketing expenses 2,475,000 115,500* Fixed administrative expenses 1,820,000 4,410,500 Net operating income Fixed interest expenses Income before income taxes Income taxes (30%) Net income 2,354,500 577,500 1,777,000 533,100 $ 1,243,900