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 nexityear as follows:

$\backslash$table$[[\backslash$table$[[$Pittman Comp$],[$Budgeted Income$],[$For the Year Ended$]],\backslash$table$[[$ny$],[$atement$]],],[$Sales$,,$$$20,000,000$

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.

"I say it's just plain robbery," retorted Karl. "And I 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 $7\mathrm{.}5\%$ 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 $$3,000,000$ per year, but that would be more than offset by the $$4,000,000(20\%$$$20,000,000)$ that we would avoid on agents' commissions."

The breakdown of the $$3,000,000$ cost follows:

$\backslash$table$[[$Salaries:$,],[,$ Sales manager,$$125,000$