Question

Bristol Printing Company currently leases its only copy machine for $1,200 a month. The company is considering replacing this leasing agreement with a new contract that is entirely commission based. Under the new agreement, Bristol would pay a commission for its printing at a rate of $10 for every 500 pages printed. The company currently charges $0.19 per page to its customers. The paper used in printing costs the company $0.06 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.) = Breakeven number of units 0 Requirements 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 Bristol prefer (a) the fixed lease agreement and (b) the commission agreement? Bristol estimates that the company is equally likely to sell 18,000, 28,000, 38,000, 48,000, or 58,000 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 Bristol choose? Print Done

Answer 1

Break even point = Fixed costs/(Selling price per unit – Variable costs per unit)
= 1200/(0.19-0.06-0.10)
40000	pages
New commission based = 0
2.Corrover point = Difference in fixed cost/Difference in variable cost
=1200/(0.02)	pages
60000	pages
The fixed lease agreement will be preferred for sales over 60000 pages
Upto 60000 pages – commission based
3.Profit
Pages	Fixed lease	Commission based
18000	-660	180
28000	-360	280
38000	-60	380
48000	240	480
58000	540	580
Commission based should be chosen