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 311 Manufacturing expensest $ 18,500,000 Variable Fixed overhead $ 8,325,000 2,590,000 10,915,000 Gross margin 7,585,000 Selling and administrative expenses: Commissions to agents Fixed marketing expenses 2,775,000 Fixed administrative expenses 129,500+ 1,900,000 4,804,500 Net operating income Fixed interest expenses Income before income taxes Income taxes (30%) 2,780,500 647,500 2,133,000 639,900 $ 1,493,100 Net income "Primarily depreciation on storage facilities. As Barbara handed the statement to Karl Vecci, Pittman'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 last 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 claim that after paying for advertising, travel, and the other costs of promotion, there's nothing left over for profit." replied Barbara.