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 $8,150,000 Variable Fixed overhead 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