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"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$,"$ said Barbara. "Several companies we know of pay a $7\mathrm{.}5\%$ 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

$$2,925,000$ per year, but that would be more than offset by the $$3,900,000(20\%$$$19,500,000)$ we would avoid on agents'

commissions."

The breakdown of the $$2,925,000$ cost follows:

"Super," replied Karl. "And I noticed the $$2,925,000$ equals what we're paying the agents under the old $15\%$ commission rate."

"It's even better than that," explained Barbara. $"$We can actually save $$89,700$ a year because that's what we're paying our auditors to

check out the agents' reports. So our overall administrative expenses would be less."

"Pull all of these numbers together and we'll show them to the executive committee tomorrow," said Karl. "With the approval of the

committee, we can move on the matter immediately."

Required:

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.

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 contained in the budgeted income statement for next year.

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.

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.

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.

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