Question

Please help me to do requirement 3

Integral Printing Company currently leases its only copy machine for $2.000 a month. The company is considering replacing this leasing agreement with a new contract that is entirely commission based. Under the new agreement, Integral would pay a commission for its printing at a rate of $10 for every 500 pages printed. The company currently charges $0.21 per page to its customers. The paper used in printing costs the company $0.01 per page and other variable costs, including hourly labor, amount to $0.10 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 "0" for any zero balances.) Fixed costs Contribution margin per unit Breakeven number of units 2.000 0.10 20,000 = 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-based agreement is 0 units

Answer 1

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Answer 3 Fixed Leasing agreement Pages sold Revenue Variable Cost Fixed Costs Operating Income Note: Variable Cost per page = Print Cost + Other Variable cost 0.01 + 0.10 $ 0.11 per page Each probability = 1/5 (1) (2) =(1) * 0.21 (3) = (1) * 0.11 30,000 6,300 3,300 40,000 8,400 4,400 50,000 10,500 5,500 60,000 12,600 6,600 70,000 14,700 7,700 Expected Value of Fixed Leasing agreement 0.20 Probability Expected Operating Income (6) (7) = (5) * (6) 0.20 200 0.20 400 0.20 600 0.20 800 0.20 1,000 3,000 (4) (5) = (2)-(3)-(4) 2,000 1,000 2,000 2,000 2,000 3,000 2,000 4,000 2,000 5,000 Commison based leasing agreement Pages sold Revenue Variable Cost Fixed Costs Operating Income Note: Variable Cost per page = Print Cost + Other Variable cost + Commission 0.01 +0.10 + (10/500) $ 0.13 per page = Each probability = 1/5 (1) (2) (1) * 0.21 (3) = (1) * 0.13 (4) (5) = (2)-(3)-(4) 30,000 6,300 3,900 2,400 40,000 8,400 5,200 3,200 50,000 10,500 6,500 4,000 60,000 12,600 7,800 4,800 70,000 14,700 9,100 5,600 Expected Value of Commison based leasing agreement 0.20 Probability Expected Operating Income (6) (7) = (5) * (6) 0.20 480 0.20 640 0.20 800 0.20 960 0.20 1,120 4,000

Integral should choose Commission based leasing agreement as there is higher expected value as compared to the fixed leasing agreement