CandleWorld plans to open a new retail store in Portland, Maine. The store will sell specialty candles for an average of $40 each. The average variable costs per candle are asfollows:

Wax $7

Other additives $3

Base $1

The company is negotiating its lease for the new location. The landlord has offered two leasingoptions: OptionA) a lease of $2,800 permonth; or OptionB) a monthly lease cost of $1,000 plus 15% of thecompany's monthly sales revenue.

The company expects to sell approximately 250 candles per month.

Requirements

1. Which lease option is more attractive for the company under its current salesexpectations? Calculate the total lease costunder:

Option A

Option B

2. At what level of sales(in units) would the company be indifferent between the two leaseoptions? Show your proof.

3. If thecompany's expected sales were 500 candles instead of the projection listed in theexercise, which lease options would be more favorable for the company? Why?