- Pittman Company Is A Small But Growing Manufacturer Of Telecommunications Equipment The Company Has No Sales Force Of I 1 (149.9 KiB) Viewed 26 times
Pittman Company is a small but growing manufacturer of telecommunications equipment. The company has no sales force of its own; rather, it relies completely on independent sales agents to market its products. These agents are paid a sales commission of 15% for all items sold. Barbara Cheney, Pittman's controller, has just prepared the company's budgeted income statement for next year as follows: $ 23,000,000 13,570,000 9,430,000 Pittman Company Budgeted Income Statement For the Year Ended December 31 Sales Manufacturing expenses: Variable $ 10, 350,000 Fixed overhead 3,220,000 Gross margin Selling and administrative expenses: Commissions to agents 3,450,000 Fixed marketing expenses 161,000+ Fixed administrative expenses 2,080,000 Net operating income Fixed interest expenses Income before income taxes Income taxes (30%) Net income *Primarily depreciation on storage facilities. 5,691,000 3,739,000 805,000 2,934,000 880, 200 $ 2,053,800 As Barbara handed the statement to Karl Vecci, Pittman's president, she commented, “I went ahead and used the agents' 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%." "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 20% commission rate?" "They claim that after paying for advertising, travel, and the other costs of promotion, there's nothing left over for profit," renlied Rarhara