PIttman Company is a small but growing manufacturer of telecommunicatlons 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 pald a sales commisslon 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: As Barbara handed the statement to Karl Veccl, Plttman's presldent, 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 commisslon rate to 20% " "That's the last straw," Karl replied angrily. "Those agents have been demanding more and more, and this time they've gone too far. How can they possibly defend a 20% commlssion rate?" "They clalm that after paying for advertlsing. travel, and the other costs of promotlon, there's nothing left over for profit," replied Barbara. "I say It's Just plain robbery." retorted Karl. "And I also say It's tIme we dumped those guys and got our own sales force. Can you get your people to work up some cost figures for us to look at?" "We've already worked them up," sald Barbara. "Several companles we know about pay a 7.5\% commission to thelr own salespeople, along with a small salary. Of course, we would have to handle all promotion costs, too. We figure our fixed expenses would Increase by $3,075,000 per year, but that would be more than offset by the $4,100,000(20%$20,500,000) that we would avold on agents" commisslons." The breakdown of the $3,075,000 cost follows: "Super," replied Karl. "And I notlced that the $3,075,000 equals what we're paylng the agents under the old 15% commlssion rate." "It's even better than that," explained Barbara. "We can actually save $94,300 a year because that's what we're paylng our auditors to check out the agents' reports. So our overall administratlve expenses would be less." "Pull all of these numbers together and we'll show them to the executlve committee tomorrow," sald Karl. "With the approval of the commlttee, we can move on the matter Immedlately." Required: 1. Compute Pittman Company's break-even point in dollar sales for 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. 2. 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. 3. 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. 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. 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.)