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Wheels, Inc. manufactures bicycles sold through retail bicycleshops in the southeastern United States. The company has twosalespeople that do more than just sell the products- they managerelationships with the bicycle shops to enable them to better meetconsumers' needs. The company's sales reps visit the shops severaltimes per year, often for hours at a time. The owner of Wheels isconsidering expanding to the rest of the country and would like tohave distribution through 2,250 bicycle shops. To do so, however,the company would have to hire more salespeople. Each salespersonearns 35,000 plus 5 percent commission on all sales annually.Another alternative is to use the services of sales agents insteadof its own sales force. Sales agents would be paid 8 percent ofsales. Each sales call lasts approximately 3 hours and each salesrep has approximately 750 hours per year to devote to customers.Wheels needs 18 salespeople if it has 2,250 bicycle shop accountsthat need to be called on two times per year. At what level ofsales would it be more cost efficient for Wheels to use to salesagents compared to its own sales force? To determine this, considerthe fixed and variable costs for each alternative. What are thepros and cons of using a company's own sales force versusindependent sales agents?
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