An insurance company is considering using independent sales agents who would receive 7 percent sales commission on sales or its own insurance salespeople who would receive 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?

Question

Quizplus · Accepted Answer

Let's represent the total sales as "S".

For independent sales agents:

Commission = 7% * S
Total cost = 7% * S + $650,000

For company salespeople:

Commission = 5% * S
Total cost = salaries + benefits + sales administration costs = fixed cost + (5% * S)

We need to find the point where the total cost of using independent sales agents is less than the total cost of using company salespeople.

7% * S + $650,000 < $650,000 + 5% * S
2% * S < $650,000
S < $32,500,000

Therefore, independent sales agents would be less costly if total sales are less than $32,500,000.

Thus, the correct answer is B.

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