pittman company is a small but growing manufacturer of telecommunications equipment

Sales Manufacturing expenses : Variable Fixed overhead Gross margin Selling and administrative expanses: Comulsslons to agents Fixed marketing expanses Fixed administrative expanses Net operating income Fixed interest expenses Incoma before income taxes Incoma taxes (30%) Net income *Primarily depreciation on storage facilities 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: Pittman Company Budgeted Income Statement For tha Year Ended December 31 143, 500* 717, soo 746, 700 $9,225, ooo 2, 870, ooo 3, 075, ooo 1 980, ooo $20, soo, ooo 12, 095, ooo 8, 40s, ooo s, 198, soo 3, 206, soo 2, 489, ooo s 1, 742,300 As Barbara handed the statement to Karl Vecci, Pittman's president, she commented, "l 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