rmanompany iS a small Dul growing or has no sales force of its own: rather, it relie-yoe , to market its Expert Q&A e7:ndent sales agents are a sales 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 19 600000 Manulacturing expenses 7 800 000 2.820,000 Fxed overhead 10.620 000 Gross margin Selling and administralive espenses 980 000 52,000 240.000 Fxed marketing expenses Fixed administrative expenses Nel operating income Fxed interest expenses 2812.000 060 000 Income belore income taxe Income taxes (40% 2152.000 60 8OO 1291 200 Primarily depreciation on storage facilities. As Barbara handed the statement to Karl Vecci, Pittman's president, she commented, T went ahead and used the agents 18% 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 23%." 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 23% commission rate?" They claim that after paying for advertising, travel, and the other costs of promotion, there's nothing left over for profit, replied Barbara 1 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, said Barbara. "Several companies we know about pay a 7.6% commission to their 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 $3,528,000 per year, but that would be more than offset by the $4.508.000 (23% x $ 19,600,000) that we would avoid on agents' commissions." The breakdown of the $3,528,000 cost follows