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, Pittmans controller, has just prepared the companys budgeted income statement for next year. The statement follows:

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 16,300,000 Sales Manufacturing expenses: 7,250,000 Variable Fixed overhead 2,380,000 9,630,000 Gross margin 6,670,000 Selling and administrative expenses: 2,608,000 Commissions to agents 130,000 Fixed marketing expenses 1,850,000 4,588,000 Fixed administrative expenses 2,082,000 Net operating income Fixed interest expenses 550,000 1,532,000 Income before income taxes 536,200 Income taxes (35%) Net income 995,800 *Primarily depreciation on storage facilities