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 the Year Ended December $31$

Sales

Manufacturing expenses:

Gross margin

Selling and administrative expenses:

Commissions to agents $3,675,000$

Fixed marketing expenses $171,{500}^{**}$

Net operating income $4,058,500$

Fixed interest expenses $\frac{857,500}{3,201,000}$

Income taxes $(\frac{30}{\%})960,300$

Net income $$2,240,700$

$*$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.

"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

$$3,675,000$ per year, but that would be more than offset by the $$4,900,000(20\%$$$24,500,000)$ that we would avoid on agents'

commissions."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 pald a sales commisslon of $15\%$ for all

ltems sold.

Barbara Cheney, Plttman's controller, has just prepared the company's budgeted Income statement for next year as follows:

$-$Primarily depreclation on storage facilitles.

As Barbara handed the statement to Karl Veccl, Plttman's presldent, 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 clalm that after paying for advertising, travel, and the other costs of promotlon, 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$,"$ sald Barbara. "Several companles we know about pay a $7\mathrm{.}5\%$ commission to thelr own salespeople,

along with a small salary. Of course, we would have to handle all promotlon 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\%$$$24,500,000)$ that we would avold on agents'

commissions."

The breakdown of the $$3,675,000$ cost follows:

"Super," replied Karl. "And I noticed that the $$3,675,000$ equals what we're paylng the agents under the old $15\%$ commisslon rate."

"It's even better than that," explalned 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 administratlve expenses would be less."

"Pull all of these numbers together and we'll show them to the executlve committee tomorrow," sald Karl. "With the approval of the

committee, we can move on the matter Immedlately."

Required:

Compute Plttman Company's break$-$even point In dollar sales for next year assuming:

a$.$ The agents'