A company is thinking of switching from independent sales agents to hiring its own sales force. If 10 salespeople were hired, they would be paid a 3% commission on sales plus a salary of $20,000 each. Independent sales agents are currently paid a commission of 5% on sales. At what sales volume is the company economically indifferent about which sales organization to use in a selling situation?
A) $1,000,000
B) $2,500,000
C) $10,000,000
D) $25,000,000

Question

Quizplus · Accepted Answer

The company is indifferent when the total cost of hiring salespeople equals the cost of using independent agents. For 10 salespeople, the cost is $200,000 (salary) + 3% of sales. For agents, it's 5% of sales. Setting these equal: $200,000 + 0.03x = 0.05x, solving gives x = $10,000,000.

A Company Is Thinking of Switching from Independent Sales Agents