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. $ 7,200,000 2,340,000 2,400,000 120,000* 1,800,000 $ 16,000,000 9,540,000 6,460,000 4,320,000 2,140,000 540,000 1,600,000 480,000 $ 1,120,000 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.

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 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 Vecci, Pittman's president, she commented, "I went ahead and used the agents' 15\% commission rate in completing these staternents, 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. 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 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 Vecci, Pittman's president, she commented, "I went ahead and used the agents' 15\% commission rate in completing these staternents, 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