Question

Wheels, Inc. is a manufacturer of bicycles sold through retail bicycle shops in the southeastern United States. The company has two salespeople who do more than just sell the​ products-they manage relationships with the bicycle shops to enable them to better meet​ consumers' needs. The​ company's sales reps visit the shops several times per​ year, often for hours at a time. The owner of Wheels is considering expanding to the rest of the country and would like to have distribution through 3500bicycle shops. To do​ so, however, the company would have to hire more salespeople. Each salesperson earns $55000 plus 3percent commission on all sales. Another alternative is to use the services of sales agents instead of its own salesforce. Sales agents would be paid 6 percent of sales. Each sales call lasts approximately 1.7 ​hours, and each sales rep has approximately 1785hours per year to devote to customers. Wheels needs 20

salespeople if it has 3500 bicycle shop accounts that need to be called on six times per year. At what level of sales would it be more cost efficient for Wheels to use sales agents compared to its own sales​ force?

If Wheels expects sales to be _______than________then it would be more efficient to use sales agents. ​(Round to the nearest​ dollar.)

Answer 1

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Each own sales person earns $55,000 + 3x (where x is the amount of sales done by the sales person). Fixed cost is $55,000 and variable cost is 3x

Sales agent earns 6x. Fixed cost is Zero and Variable cost is 6x

Thus, at sales of $55,000/ (6-3) = $18,333 there is no difference in cost.

At per sales person sales of less than $18,333 it would make sense for the company to use sales agents.

Other than the financial angle, using own Sales force can be much more effective as own employees will be more motivated to close deals for the company. Additionally, the Company will be able to have more control over them.