An Insurance Company Is Considering Using Independent Sales Agents Who

question 186

Multiple Choice

An insurance company is considering using independent sales agents who would receive 7 percent sales commission on sales or its own insurance salespeople who would receive 5 percent commission, salaries, and benefits. Additionally, with a company salesforce, sales administration costs would be incurred for a total fixed cost of $650,000 per year. At what level of sales would independent salespeople be less costly?

• A)$5,416,667
• B)$32,500,00 0
• C)$650,000
• D)$35,200,00 0

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Definitions:

Materials Price Variance

The difference between the actual cost of materials and the expected cost at standard prices.

Variable Overhead

Refers to the costs of production that fluctuate with the level of output, such as utilities and materials, that do not have a fixed price associated with production levels.

Direct Labor-hours

The total hours worked by employees directly involved in the production process, used as a basis for allocating costs to products.

Variable Manufacturing Overhead

Costs that vary with production output levels, such as utilities for the production facility, which are not directly tied to specific units of production.