Pittman Company is a small but growing manufacturer of telecommunications equipment. The company has no sales force of its own rather, it relles 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: $ 16,500,000 9235 6,765, Pattan Company Budgeted Income Statement For the Year Ended December 31 Sales Hanufacturing expenses Variable 57,425,000 Fixed overhead 223100 Gross sargin Selling and administrative expensest Comissions to agents 2,475,00 Fixed marketing expenses 115,00 Fixed administrative expenses 1,320,000 Net operating income Fixed interest Expenses Incone before income taxes Income taxes (30%) Net incon 4,01050 2,354,500 3725 1,717,00 533,100 5.1,243,900 "Primarily depreciation on storage facilities As Barbara handed the statement to Karl Vecci, Pittman's president, she commented. 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 2096 "That's the last straw." Karl replied angelly. Those agents have been demanding more and more, and the 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 kan "And I also say it's time we dumped those guys and got our own sales forceCan 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 75% commission to their own salespeople along with a small salary Of course, we would have to handle all promotion costs too We figure our fred expenses would increase by $2.475.000 per year, but that would be more than offset by the $3.300.000 (20%-516.500,000) that we would evold on agents commissions The breakdown of the $2.475,000 cost follows Salons Satu persons Travel and entert vertising Total 103,125 61,70 $12,00 BOS 52.475,000 Super replied Karl. "And I noticed that the $2.475.000 equais what we re paying the agents under the old 15% commission rate it's even better than that explained Barbara. "We can caly save $75,900 a year because that's what we're paying our auditors to Per 101 Na 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. Required 1 Required 2 Required 3 Required 4 Compute Pittman Company's break-even point in dollar sales for next year assuming: (Round CM ratio to 3 decimal places and final answers to the nearest dollar amount.) Break-Even Point a The agents' commission rate remains unchanged at 15%. b. The agents commission rate is increased to 20% The company employs its own sales force. Required 2 > Prey 1 of 1 Next net income would be equal regardless of whether Pittman Company sells through age 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. ho Required 1 Required 2 Required 3 Required 4 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.) Volume of sales (in dollars) Prey 1 of 1 Next 2. Assume that Pittman Company decides to continue selling through agents and pays the 20% commission rate Determine 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 ag 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. Required 1 Required 2 Required 3 Required 4 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.) Volume of sales (in dollars) D Prev 1 of 1 Next 2. Assume that Pittman Company decides to continue selling through agents and pays the 20% commission rate. Determine the 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 agent 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. Required 1 Required 2 Required 3 Required 4 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.) Degree of Operating Leverage a b The agents' commission rate remains unchanged at 15% The agents' commission rate is increased to 20% The company employs its own sales force. C.