i need help with question 1

Firms engaged in making sales to customers are often faced with the choice between employing their own sales people or contracting the selling function to an outside agent. Maintaining an in-house sales force is expensive. There are a range of fixed and variable costs that must be considered. It may be cheaper to contract the selling function to another firm that specialized in selling. The costs associated for using outside agents typically are only variable costs. Agents are paid a commission based on actual sales made. If agent sales forces fail to sell no costs are incurred since their commission (a variable cost) will be zero. By contrast, a firm's in-house sales force may be paid a fixed salary, a commission, or both. In addition, supporting the in-house sales force normally entails added fixed costs of administration and management. If no sales occur, the firm must still pay these fixed expenses. Assume a firm is choosing between hiring its own sales personnel and contracting with an outside independent sales force (agents). If employing its own sales force, sales reps would receive a commission on sales of 2% and the fixed costs of salaries and administration are expected to be $1,000,000. If the firm hires an independent sales force (agents) all costs will be variable at 6% of sales. Thus, the cost of a company-owned sales force is: .02SalesRevenue+$1,000,000. The cost of an independent sales force is: .06 Sales Revenue. Setting these costs equal to one another and solving for Sales Revenue yields the level of sales at which the cost of a company-owned sales force just equals the cost of hiring independent sales force: .02xSalesRevenue+1,000,000=.06xSalesRevenue SalesRevenue=.06.021,000,000=25,000,000 Which choice should the firm make? If sales are expected to exceed $25,000,000 the cost of a company-owned sales force will be less than the cost of hiring independent agents. By contrast, if sales are expected to be less than $25,000,000 the independent sales force is cheaper. The relationship between sales revenue and the costs of both types of sales forces is graphically presented in Figure 1 . Costs for a company-owned sales force are greater than those for the independent sales force until sales reach $25,000,000. At sales in excess of $25,000,000 the costs of the independent sales force become greater. It's Your Turn. Show Us What You Know Shannon's Brewery in Keter, Texas is considering uaing a salos team to help it penetrate markat areas not served by its current ditributors. Howwer, Shannan Carter, the CEO, wants to know whether it would be cheaper to hire an independens outside sales force rather than hire and train his own sabes personnol. Estmates aro that the costs of Niring, traing, and maintsining his own salies force would ental fred costs of salanes and administrative overhead of $300,000 per yoar. These soles peoplo would also recoive a 3.1% commission on all sales. If going with the independent sales force cption, atf costs would be viviable in that these repe would be paid a commission of 10.5% on all salos. A. what level of sales wil the costs of each sales force be equar? Round your answer to the nearest dollar value. Round your answer to the nearest one dollar