The Vend-O-Bait Company operates and services bait vending machines placed in gas sta- tions, motels, and restaurants surrounding a large lake. Vend-O-Bait rents 200 machines from the manufacturer. It also rents the space occupied by the machines at each location where it places the machines. Arnie Bass, the company’s owner, has two employees who service the machines. Monthly fixed costs for the company are as follows:

Required: (1) Answer the following questions:

(a) What is the monthly break-even point (in packs sold)?

(b) Compute Vend-O-Bait’s monthly profit at monthly sales volumes of 52,000, 56,000, 64,000, and 68,000 packs, respectively.
(2) Suppose that instead of paying $60 fixed rent per month, Arnie Bass could arrange to pay $0.20 for each pack of night crawlers sold at each location to rent the space occupied by the machines. Repeat all computations in (1).
(3) Would it be desirable for Arnie Bass to try to change his space rental from a fixed cost ($60 per location) to a variable cost ($0.20 per pack sold)?
Why or why not?

Transcribed Image Text:

Machine rental 200 machines x $100 per month.. -$20,000 Space rental 200 locations X $60 per month. 12,000 Employee wages 2 employees x $800 per month. 1,600 Other fixed costs Total Currently, Vend-O-Bait's only variable costs are the costs of the night crawlers, which it purchases for $1.20 per pack. Vend-O-Bait sells these night crawlers for $1.80 per pack. 2,400 $36,000