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 4000 bicycle shops. To do​ so, however, the company would have to hire more salespeople. Each salesperson earns $40000 plus 2 percent commission on all sales. Another alternative is to use the services of sales agents instead of its own salesforce. Sales agents would be paid 4 percent of sales. Each sales call lasts approximately 1.7 hours, and each sales rep has approximately1360 hours per year to devote to customers. Wheels needs10 salespeople if it has 4,000 bicycle shop accounts that need to be called on two times per year. At what level of sales would it be more cost efficient for Wheels to use sales agents compared to its own sales​ force?If Wheels expects sales to be▼ greaterlessthan​$nothing​,then it would be more efficient to use sales agents. ​(Round to the nearest​ dollar.)

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Asked Oct 22, 2019
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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 4000 bicycle shops. To do​ so, however, the company would have to hire more salespeople. Each salesperson earns $40000 plus 2 percent commission on all sales. Another alternative is to use the services of sales agents instead of its own salesforce. Sales agents would be paid 4 percent of sales. Each sales call lasts approximately 1.7 hours, and each sales rep has approximately
1360 hours per year to devote to customers. Wheels needs
10 salespeople if it has 4,000 bicycle shop accounts that need to be called on two times per year. At what level of sales would it be more cost efficient for Wheels to use sales agents compared to its own sales​ force?
If Wheels expects sales to be
 greater
less
than
​$nothing​,
then it would be more efficient to use sales agents. ​(Round to the nearest​ dollar.)
 
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Expert Answer

Step 1

Alternative 1:

 

Required Sales = X

Number of Salespersons required = 10

Fixed Salary of Each Salesperson = $40,000

Commission on Sales of Each Salesperson = 2% or 0.02

 

Calculation of Cost of Salespersons:

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Cost of Salespersons = (Number of Salespersons x Fixed Salary)(Comm ission on Sales x Sales) (10x $40, 000)+(0.02 x X) = $400,000 (0.02 x X)

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Step 2

Alternative 2:

 

Required Sales = X

Commission on Sales to Sales Agents = 4% or 0.04

 

Calculation of Cost of hiring Sales Agents:

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Cost of Hiring Sales Agent = Commission on Sales x Sales 0.04xX

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Step 3

Cost of Salespersons = $400,000 + (0.02 × X)

Cost of Hiring Sales Agent = 0.04...

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Cost of Salespersons = Cost of Hiring Sales Agent $400,000+(0.02-X) = 0.04 x X $400, 000 (0.04x X) - (0.02 x X) $400, 000 0.02 x X $400,000 0.02 $20,000,000 = X

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