Question

Flexo Printing Company currently leases its only copy machine for $1,400 a month. The company is considering replacing this leasing agreement with a new contract that is entirely commission based. Under the new agreement, Flexo would pay a commission for ils printing at a rate of $25 for every 500 pages printed. The company currently charges $0.25 per page to its customers. The paper used in printing costs the company $0.04 per page and other variable costs, including hourly labor, amount to 30.05 per page. Read the requirements Requirement 1. What is the company's breakeven point under the current leasing agreement? What is it under the new commission-based agreement? First, determine the formula used to calculate the breakeven point in units, then calculate the company's breakeven point under the current leasing agreement. (Enter a "O" for any zero balances.) Fixed costs 1.400 Contribution margin per unit 0.16 = Breakeven number of units 3.750 Requirements What is it under the new commission-based agreement? (Enter a "O" for any zero balances.) The company's breakeven point under the new commission-based agreement is 0 units. 1. 2. Requirement 2. For what range of sales levels will Flexo prefer (a) the fixed lease agreement and (b) the commission agreement? In order to determine the range of sales levels Flexo would prefer for each agreement, we must first calculate the indifference point. The indifference point = sales volume at which the income from alternative 1 equals the income from alternative 2. What is the company's breakeven point under the current leasing agreement? What is it under the new commission-based agreement? For what range of sales levels will Flexo preler (a) the fixed lease agreement and (b) the commission agreement? Flexo estimates that the company is equally likely to sell 17.500, 27.500, 37,500, 47,500, or 57,500 pages of print. Using information from the original problem, prepare a table that shows the expected profit at each sales level under the fixed leasing agreement and under the commission-based agreement. What is the expected value of each agreement? Which agreement should Flexo choose? Now calculate the indifference point. (Round to the nearest whole number.) The indifference point is at units. Print Dane

Answer 1

) Contributich Pu I Break even point Fixed Cost o Contasi butich pus Selling Price - Variallo Cost 25 0.04 0.05 $ 0.16 ' BEP $1400 8750 pages » New Commission based=0 o , sine, Hore is no fixed lost 2) Indifference point = diffence in Fixed cost differre in Variable Cost & 1400 0.05 28000 pages - The fixed lease agreement will ho preferred 28000 pages upto 28000 pages - Connifsion based