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 preducts. These agents are paid a sales commission of 15% for all items seld. Barbara Cheney, Pittman's controller, has just prepared the company's budgeted income statement for next year as follows: Pittman Company Budgeted Income Statement For the Year Ended December 31 Sales $ 24,500,000 Manufacturing expenses: Variable 11,025,000 Fixed overhead 3.430,000 14,455,000 Gross margin 10,045,000 Selling and administrative expenses: Commissions to agents 3,675,000 Fixed marketing expenses 171,500* Fixed administrative expenses 2,140,000 5,986,500 Net operating income 4,058,500 Fixed interest expenses 857,500 Income before income taxes 3,201,000 Income taxes (30%) 960,300 Net income 52,240,700 *Primarily depreciation on storage facilities. As Barbara handed the statement to Karl Vecci, Pittman's president, she commented, \"| went ahead and used the agents' 15% commission rate in completing these statements, but we've just leamed that they refuse to handle our products next year unless we increase the commission rate 10 20%. \"That's the Iast 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 Ieft over for profit,\" replied Barbara. \"I say it's just plain robbery,\" retorted Karl. \"And | 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 $3,675,000 per year, but that would be more than offset by the $4,900,000 (20% x $24,500,000) that we would avoid on agents' commissions.\" The breakdown of the $3,675,000 cost follows Salaries: Sales manager 153,125 Salespersons 918,750 Travel and entertainment 612,500 Advertising 1,990,625 Total 53,675,000 *Super,\" replied Karl. \"And | noticed that the $3,675,000 equals what we're paying the agents under the old 15% commission rate.\" I's even better than that,\" explained Barbara. \"We can actually save $112,700 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\" Required: 1. Compute Pittman Company's break-even point in dollar sales for next year assuming: a. The agents' commission rate remains unchanged at 15% D. The agents' commission rate is increased 1o 20%. c. The company employs its own sales force. 2. Assume that Pittman Company decides 1o continue selling through agents and pays the 20% commission rate. Determine the doliar sales that would be required 1o generate the same net income as contained in the budgeted income statement for ne 3. Determine the dollar sales at which net income would be equal regardiess of whether Pittman Company sells through agents (at a 20% 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. Required 1 Required 2 Required 3 Required 4 Compute Pittman Company's break-even point in dollar sales for next year assuming: Note: Round CM ratio to 3 decimal places and final answers to the nearest dollar amount. a. The agents' commission rate remains unchanged at 15%. $ 16,497,500 b. The agents' commission rate is increased to 20% c. The company employs its own sales force. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Assume that Pittman 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. Mote: Round CM ratio to 3 decimal places and final answer to the nearest dollar amount. Show lessa $ 28,000,000 Use income before income taxes in your operating leverage computation. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Determine the dollar sales at which net income would be equal regardless of whether Pittman Company sells through agents (at a 20% commission rate) or employs its own sales force. Note: Do not round intermediate calculations. Volume of sales (in dollars) $ 27,402,307 Use income before income taxes in your operating leverage computation. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Reqlfred 4 Compute the degree of operating leverage that the company would expect to have at the end of next year assuming: (Use income before income taxes in your operating leverage computation.) Mote: Round your answers to 2 decimal places. 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. Required 3