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: Variable. Fixed overhead Gross margin Selling and administrative expenses: Commissions to agents Fixed marketing expenses Fixed administrative expenses Net operating income Fixed interest expenses Income before income taxes Income taxes (30%) Net income *Primarily depreciation on storage facilities. $ 10,575,000 3,290,000 3,525,000 164,500* 2,100,000 $ 23,500,000 13,865,000 9,635,000 5,789,500 3,845,500 822,500 3,023,000 906,900 $ 2,116,100 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?"

Complete this question by entering your answers in the tabs below. 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. (Do not round intermediate calculations.) 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 sates 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: As Barbara handed the statement to Karl Vecc, 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? Complete this question by entering your answers in the tabs below. 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.) (Round your answers to 2 decimal places.) final answers to the nearest dollar amount.) \begin{tabular}{l|l|} \hline a. The agents' commission rate remains unchanged at 15%. \\ b. The agents' commission rate is increased to 20% \\ \hline C. The company employs its own sales force. \end{tabular} Required 2 Complete this question by entering your answers in the tabs below. 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. (Round CM ratio to 3 decimal places and final answer to the nearest dollar amount.) 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%. b. The agents' commission rate is increased to 20%. c. The company employs its own sales force. 2. Assume that Pittman Company decides to continue selling through agents and pays the 20% commission rate. Determine the dolla sales that would be required to generate the same net income as contained in the budgeted income statement for next year. 3. 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. 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