An insurance company is considering using independent sales agents who would receive a 7 percent sales commission on sales or its own insurance salespeople who would receive a 5 percent commission, salaries, and benefits. Additionally, with a company salesforce, sales administration costs would be incurred for a total fixed cost of $650,000 per year. At what level of sales would independent salespeople be less costly to the firm?

Question

Quizplus · Accepted Answer

The independent sales agents are less costly when the commission they earn (7% of sales) is less than the total cost of using the company's own salesforce (5% commission + $650,000 fixed costs). Solving the equation 0.07x = 0.05x + 650,000 gives x = $32,500,000.

An Insurance Company Is Considering Using Independent Sales Agents Who