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Ritmon Compary is a small but growing manufacturer of telecommunications equipment. The company has no sales force of is own; ratiee it relies conpletely on independent sales agents to market its products. These agents are poid a: sales commission of 15% for all liems sold. Barbara Cheney. Pitiman's controlier has fust prepared the combany's bodgcted income statement for next year as fotoms. As Barbsa handed the statement to Kart Vecei, Patman's president, she commented, "I went anead and used the agont' 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%." "Thors the last straw." Kact replied angrily. "Those agemts have been demanding more and more, and this time they've gane too fac. How can they poss bly defend a 20% commission cate? "They clsim that after psying for advertising, travel, and the other costs of promotion, there's nothing left over for profic" repled Burbera. T say it's just plain tohbery." retorted Karl, "And I also say it's time we dumped those guys and got our own sales focee. Can you get your people to work up soene cost figures foe us to lock at?" "We vo already wouked them up," said Barbara, "Several companies we know about pay a 7.5% commlssion to their own salespeople, whong with a smat saliry or course, we would hive to handle all promosion costs, too. We figure our fixed expenses would increase by $3,000.000 per yeac, but that would be more than offset by the $4,000,000 R 200 . 520,000,0000 thot we would avaid an agents' cammissions." The breakdonn of the $3,000,000 cost fotows: "Super," replied Kai, "And I notked that the 53,000,000 equels what we're poying the agents under the old 15% comprission rate." "It'? even benter than that' explained Aurbora, "We can ectually seve $92,000 a year because thar's what we're peying "Or auditors to check out be agents" reports 50 our overali administrative expenses would be loss." "Puil ail of these numbers topether and woll show them to the expeutive committee tomorrow," said Karl. "With the epproval of the cammittee, we can move on the matter immediately. *say it's just plain robbery. retorted Karl. "And I aiso say it's time we dumpod those guys and got out own saies force. Can you got your people to work up some cost figures for us to look ar?" "We ve already worked them up," said Barbara. "Several companies we know about pay a 7.5% commission to their own silespeoplo, along with a sminall salary. Of course, we would have to handie all promotion costs, too, We figure our fixed expenses wauld increase by $3,000,000 per year, but that would be more than offset by the 54.000.000 f 20%6. $20,000,000, that we would aveid on agents" commissions." The breakdown of the $3,000,000 cost follows: "Super" repired Karl "And I noticed that the $3,000,000 equsls what we're paying the agents under the old 15%6 commission rate:" "it's even better than that," explained Barbara. "We can actually smve 592,000 a year because that's what we're paying our auditors to cheek out the agents' reports. So our overall administrative experses would be less." "Pull al of these numbers together and we'll show them to the executhe committee tomarrow," said Karl "With the approval of the commithee. we can move on the matter immediately." Required: 1. Compute-Pittman Compary's breakroven point in dolisr sales for next year assuming; a. The agents' commission rate remains unchanged at 155 . b. The agents' comenission rate is increased to 20%5. c. The company employs its own sales force. 2. Assume that Pittman Company decides to continue seling through agents and pays the 206 commission rate. Determine the dollar sales that would be required to generate the same net income as contained in the budgeted income stalement for nexp year: 3. Determine the dollar sales at which net income would be oqual regardless of whether Pieman Company 1 ells: through agents (at a 20% commission rate) or employs its own sales force 4. Compute the dogree of operating leverage that the company would oxpect 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 cormpany employs its own sales force. Use income beforo inccme taxes in your operating leworage 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.)