Printing Company currently lease it only copy machine for $1,800 a month. The company is considering replacing this listen remote with a new contract that is entirely commission based. Under the new agreement, Crossover would pay a commission for its printing at a rate of $ 10$10 for every 500 pages printed. The company currently charges $0.250.25 per page to its customers. The paper used in printing costs the company $0.06 per page and other variable costs, including hourly labor, amount to $0.10 per page. 

Requirement 

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
	/		=

 

1. What is the company's breakeven point under the current leasing agreement? What is it under the new commission-based agreement?

2. For what range of sales levels will Crossover prefer (a) the fixed lease agreement and (b) the commission agreement?

3. Crossover estimates that the company is equally likely to sell 20,000, 30,000, 40,000, 50,000, or 60,000 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 Crossover choose?