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Printing Company currently leases its only copy machine for

$ 1 comma 300$1,300

a month. The company is considering replacing this leasingagreement with a new contract that is entirely commission based.Under the new?agreement,

FlexoFlexo

would pay a commission for its printing at a rate of

$ 20$20

for every 500 pages printed. The company currently charges

?$0.300.30

per page to its customers. The paper used in printing costs thecompany

$ 0.07$0.07

per page and other variable? costs, including hourly? labor,amount to

$ 0.10$0.10

per page.Read the requirements

LOADING...

.

Requirement 1. What is the? company's breakevenpoint under the current leasing? agreement? What is it under thenew? commission-based agreement?

?First, determine the formula used to calculate the breakevenpoint in? units, then calculate the? company's breakeven pointunder the current leasing agreement. ?(Enter a? "0" for any zero?balances.)

Fixed costs	/	Contribution margin per unit	=	Breakeven number of units
$1,300	/	0.13	=	10,000

What is it under the new? commission-based agreement? ?(Enter a?"0" for any zero? balances.)

The company's breakeven point under the new commission-basedagreement is

0

units.

Requirement 2. For what range of sales levelswill

FlexoFlexo

prefer? (a) the fixed lease agreement and? (b) the commission?agreement?In order to determine the range of sales levels

FlexoFlexo

would prefer for each? agreement, we must first calculate theindifference point.

The indifference point =

sales volume at which the income from alternative 1 equals theincome from alternative 2.

Now calculate the indifference point. ?(Round to the nearestwhole? number.)

The indifference point is at

32,500

units.

FlexoFlexo

would prefer the fixed lease agreement at

sales more than the indifference point

.The commission based agreement would be preferred at

0 units up to the indifference point

.Requirement 3.

FlexoFlexo

estimates that the company is equally likely to sell

22 comma 00022,000?,

32 comma 00032,000?,

42 comma 00042,000?,

52 comma 00052,000?,

or

62 comma 00062,000

pages of print. Using information from the original? problem,prepare a table that shows the expected profit at each sales levelunder the fixed leasing agreement and under the? commission-basedagreement. What is the expected value of each? agreement? Whichagreement should

FlexoFlexo

?choose?

Begin with the fixed leasing agreement. ?(Use parentheses or aminus sign for? losses.)

Fixed leasing agreement
			Expected
Sales level	Profit/(Loss)		Profit/(Loss)
22,000	$1,560		$312
32,000	$2,860		$572
42,000	$4,160		$832
52,000	$5,460		$1,092
62,000	$6,760		$1,352
Total expected profit/(loss)			$4,160

?Next, calculate the expected profit at each sales level underthe commission based agreement.

Commission-based agreement
			Expected
Sales level	Profit/(Loss)		Profit/(Loss)
22,000
32,000
42,000
52,000
62,000
Total expected profit/(loss)

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