Q8. A manufacture is considering a switch from manufacturers’ representatives to an internal sales force. Manufacturers’...
Q8. A manufacture is considering a switch from manufacturers’ representatives to an internal sales force. Manufacturers’ reps are paid 8.5% commission and incur $625,000 in fixed costs; while an internal sale forced has fixed costs projected at $1,950,000 and would receive a 3% commission.
At what sales volume would the manufacture be indifferent between the two alternatives?
Homework Answers
| Lest the sales volume be $x |
| 625000+0.085x = 1950000+0.03x |
| 0.085x-0.03x = 1950000-625000 |
| 0.055x = 1325000 |
| x = 1325000/0.055= $24090909 |
| Required sales volume = $24090909 |
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