Composite Printing Company currently leases its only copy machine for $ 1,500 a

Question

Composite Printing Company currently leases its only copy machine for $ 1,500 a month. The company is considering replacing this leasing agreement with a new contract that is entirely commission based. Under the new agreement. Composite would pay a commission for its printing at a rate of $ 10 for every 500 pages printed. The company currently charges $ 0.25 per page to its customers. The paper used in printing costs the company $ 0.06 per page and other variable costs, including hourly labor amounting to $0.09 per page. Read the requirements. Requirement 1. What is the company's breakeven point under the current agreement? What is it under 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. What is it under the new commission-based agreement? The company's breakeven point under the new commission-based agreements is For what range of sales levels will composite prefer (a) the fixed lease agreement 9b) the commission agreement? In order to determine the range of sales levels Composite would prefer for each agreement, we must first calculate the indifference point. The indifference point= Now calculate the indifference point. Composite would prefer the fixed lease agreement at

Explanation / Answer

Sales Level Profit Expected Profit & Loss 17500 250 1400 27500 1250 2200 47500 3250 3800 57500 4250 4600 Total Expected P&L 12000 Working as below Sales Level Sales value Machine Rent Priniting Cost Labor Cost Profit 17500 4375 1500 1050 1575 250 27500 6875 1500 1650 2475 1250 47500 11875 1500 2850 4275 3250 57500 14375 1500 3450 5175 4250 Sales Level Sales value Commision Priniting Cost Labor Cost Expected Profit & Loss 17500 4375 350 1050 1575 1400 27500 6875 550 1650 2475 2200 47500 11875 950 2850 4275 3800 57500 14375 1150 3450 5175 4600 12000

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