Pittman Company is a small but growing manufacturet 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 As Barbara handed the storement to Kat Vecci Piuman president, she commented I went ahead and used the agents 15% commission rate in completing these statements, but we ve fust fearned that they refuse ta handie our products next year unless we. increose the commission rate to 20m. "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% commission rate? "They claim that after paying for advertising, travet, and the other costs of promotion, there's nothing left over for profit," replied Barbara "Isay 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 fot us to look at? "We ve atready worked them up." said Barbara "Severat companies we know about pay a 7.5\% commission to their own salecpeople. along with a small salary Of course, we would have to handie all promotion costs, too. We figure our fixed expenses would increase by $2,850,000 per year, but that would be more than oftset by the $3,800,000(20%$19,000,000) that we would avoid on agents commissions? The breakdown of the $2.850.000 cost follows. "Super, repled Karf "And I noticed that the \$2 850,000 equas whot weie payng we agents under the old 15% commission fate: eheck out the ogents teports So our overail adiministathes expensei woold be iess" "It's even better than that," explained Barbara. "We can actually save $87.400 a year because that's what we're paying our auditors to check out the agents reports. So out overat administrative expenses would be less:" "Pull all of these numbers together and well show them to the executive committee tomorrow," said Karl. "With the approval of the committee, we can move on the matter immediately" Required: 1. Compute Pittman Company's break-even point in doliar sales for next yeor assuming a. The agents' commission rate remarns unchanged at 15%. b. The agents commission rate is increased to 20% c. The company employs its own sales force 2. Assume that Pitman Company decides to continue seling 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 fate) or employs its own sales force 4. Compute the degree of operating leverage that the company would expect to have ot 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 fored Use income before income taxes in your operating leverage computation