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 16% for all items sold Barbara Cheney, Pittman's controller, has just prepared the company's budgeted income statement for next year. The statement follows Pittman Company Budgeted Income Statement For the Year Ended December 31 Sales Manufacturing expenses: $21,700,000 Variable Fixed overhead $8,150,000 3,100,000 11,250,000 Gross margin Selling and administrative expenses: 10,450,000 3,472,000 310,000* Commissions to agents Fixed marketing expenses Fixed administrative expenses 2,750,000 6,532,000 Net operating income Fixed interest expenses $3,918,000 730,000 Income before income taxes Income taxes (25%) 3,188,000 797,000 Net income 2,391,000 Primarily depreciation on storage facilities