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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: Note: Round CM ratio to 3 decimal places and final answers to the nearest dollar amount. Complete this question by entering your answers in the tabs below. Calculate 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. Note: Do not round intermediate calculations. Complete this question by entering your answers in the tabs below. Compute the degree of operating leverage that the company would expect to have at the end of next year assuming: (Use income before income taxes in your operating leverage computation.) Note: Round your answers to 2 decimal places. Case 5-32 (Algo) Cost Structure; Break-Even and Target Profit Analysis [LO5-4, LO5-6, LO5-7] PIttman Company Is a small but growing manufacturer of telecommunications equipment. The company has no sales force of its own; rather, it relies on Independent sales agents to market Its products. These agents are pald a sales commlssion of 15% for all Items sold. Barbara Cheney, PIttman's controller, Just prepared the company's budgeted Income statement for next year as follows: *Primarlly depreclation on storage facillitles. As Barbara handed the statement to Karl Veccl, Plttman's president, she commented, "I went ahead and used the agents' 15% commission rate in completing these statements, but we've just learned they refuse to handle our products next year unless we Increase the commission rate to 20%." "That's the last straw," Karl replled angrlly. "Those agents have been demanding more and more, and this time they've gone too far. How can they posslbly defend a 20% commission rate?" "They clalm after payIng for advertising, travel, and the other costs of promotion, there's nothing left over for profit," replled Barbara. "That's ridiculous," 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 of 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 $3,300,000 per year, but that would be more than offset by the $4,400,000(20%$22,000,000) we would avold on agents' commissions." Complete this question by entering your answers in the tabs below. Assume that Pittman Company decides to continue selling through agents and pays the 20% commission rate. Calculate the dollar sales that would be required to generate the same net income as contained in the budgeted income statement for next year. Note: Round CM ratio to 3 decimal places and final answer to the nearest dollar amount. The breakdown of the $3,300,000 cost follows: "Super," replied Karl. "And I noticed the $3,300,000 equals what we're paylng the agents under the old 15% commission rate." "It's even better than that," explained Barbara. "We can actually save $101,200 a year because that's what we're paylng our auditors to check out the agents' reports. So our overall adminlstratlve 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 committee, we can move on the matter Immedlately." Requlred: 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 Pittman Company decides to continue selling through agents and pays the 20% commission rate. Calculate the dollar sales required to generate the same net Income as contalned in the budgeted Income statement for next year. 3. Calculate the dollar sales at which net Income would be equal regardless of whether Pittman Company sells through agents (at a 20% commlssion rate) or employs its own sales force. 4. Compute the degree of operating leverage 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

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