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 $18,000,000 Manufacturing expenses: $8,100,000 Variable Fixed overhead 2,520,000 10,620, 000 7,380,000 Gross margin Selling and administrative expenses: 2,700,000 Commissions to agents Fixed marketing expenses Fixed administrative expenses 126,000* 1,880,000 4,706,000 2,674,000 630,000 2,044,000 613,200 $ 1,430,800 Net operating income Fixed interest expenses Income before income taxes Income taxes (30%) Net income Primarily depreciation on storage facilities 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%