Case $5-32($Algo$)$ Cost Structure; Break$-$Even and Target Profit Analysis $[$LO$5-4,$ LO$5-6,$ LO$5-7]$

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 paid a sales commission of $15\%$ for all items sold.

Barbara Cheney, Pittman's controller, just prepared the company's budgeted income statement for next year as follows:

$*$Primarily depreciation on storage facilities.

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 they refuse to handle our products next year unless we

increase the commission rate to $20\%."$