Let x represent the level of revenues at which the company would choose to stop using wholesalers and market its products through its own sales force.
With wholesalers: Revenue = x
Commission paid to wholesalers = 0.15 * x
With own sales force: Revenue = x
Commission paid to sales force = 0.10 * x
If the company incurs a $200,000 start-up cost, the revenue from using its own sales force must be at least $200,000 higher than the revenue from using wholesalers.
0.10x - 0.15x = $200,000
0.05x = $200,000
x = $200,000 / 0.05
x = $4 million
Therefore, the company would choose to market its products through its own sales force at a revenue level of $4 million.
Answer: a. $4 million
If a company is selling its products through wholesalers who are paid a 15 percent commission, at what level of revenues would it choose to stop using wholesalers and market its products through its own sales force if it would incur a $200,000 start-up cost and the sales force would receive a 10 percent commission?
a. $4 million
b. $5 million
c. $3 million
d. $1 million
e. $2 million
1 answer