A company is considering whether to hire independent agents or develop its own sales force. Agents are paid a 4% commission, alternatively a company sales force would consist of 6 people paid a $25,000 salary each along with a 2% commission. A company sales force is economically viable if sales are forecasted to be:
A) below $1,250,000.
B) above $1,250,000.
C) below $7,500,000.
D) above $7,500,000.

Question

Quizplus · Accepted Answer

The company sales force becomes economically viable when the cost of hiring them is less than or equal to the cost of using independent agents. The fixed salary cost for the sales force is $150,000 (6 people x $25,000). The breakeven point is when the total cost of the sales force equals the 4% commission of agents. Solving for sales: $150,000 + 2% of sales = 4% of sales, results in sales of $7,500,000. Therefore, the sales force is viable above $7,500,000.

A Company Is Considering Whether to Hire Independent Agents or Develop