st Lionel Corporation manufactures pharmaceutical products sold through a network of sales agents in the United States and Canada. The agents are currently paid an 18% commission on sales; that percentage was used when Lionel prepared the following budgeted income statement for the fiscal year ending June 30, 2019: Lionel Corporation Budgeted Income Statement For the Year Ending June 30, 2019 (6000 omitted) Balon Cost of goods sold Variable Fixed Gross profit Selling and administrative costs. Commissions Fixed advertising cost Fixed administrative cost Operating income Fixed interest cost. Income before income taxes Income taxes (30%) Net income $29,400 $13,230 3,528 16,758 $12,642 $ 5,292 882 2,352 8,526 64.116 735 63,381 1,014 $2,367 Since the completion of the income statement, Lionel has learned that its sales agents are requiring a 5% increase in their commission rate (to 23%) for the upcoming year. As a result, Lionel's president has decided to investigate the possibility of hiring its own sales staff in place of the network of sales agents and has asked Alan Chen, Lionel's controller, to gather information on the costs associated with this change. Alan estimates that Lionel must hire eight salespeople to cover the current market arca, at on average annual payroll cost for each employee of $80,000, including fringe benefits expense. Travel and entertainment expenses is expected to total $690,000 for the year and the annual cost of hiring a sales manager and sains secretary will be $195.000. In addition to their salaries the eight