% E7-36A (similar to) Question Help 0 Candle Creations plans to open a new retail store in Biddeford, Maine. The store will sell specialty candles for an average The company is negotiating its lease for the new location. The landlord has offered two leasing options: Option A) a lease of $25 each. The average variable costs per candle are as follows: of $3,500 per month; or Option B) a monthly lease cost of $1,000 plus 20% of the company's monthly sales revenue. Wax $7 The company expects to sell approximately 400 candles per month. Other additives $2 Read the requirements. Base $3 C (Consider only the fixed and variable costs related to the lease options.) The total lease cost under Option B is $ 3,000. Which lease option is more attractive for the company under its current sales expectations? The lease option that is more attractive for the company under its current sales expectations is option B, the fixed lease payment plus sales based commission because it results in the lowest total lease costs Requirement 2. At what level of sales (in units) would the company be indifferent between the two lease options? Show your proof. i X Requirements Begin by selecting the equation to determine the indifference point. (Abbreviations used" FC = Fixed costs, VCU = Variable costs per unit) (VCU (option A) x Units) + FC (option A) = (VCU (option B) x Units) + FC (option B) The indifference point is 500 candles. Show your proof. (Consider only the fixed and variable costs related to the lease options. Complete all input cells. Enter a "0" for zero balances.) 1. Which lease option is more attractive for the company under its current sales expectations? Calculate the total lease cost under: Option A Option B 2. At what level of sales (in units) would the company be indifferent between the two lease options? Show your proof. 3. If the company's expected sales were 1,000 candles instead of the projection listed in the exercise, which lease options would be more favorable for the company? Why? Option A Option B 1,000 Total fixed expenses 3,500 $ Total variable expenses 0 3,500 Total lease costs Print Done Choose from any list or enter any number in the input fields and then click Check Answer. ? % E7-36A (similar to) Question Help 0 Candle Creations plans to open a new retail store in Biddeford, Maine. The store will sell specialty candles for an average The company is negotiating its lease for the new location. The landlord has offered two leasing options: Option A) a lease of $25 each. The average variable costs per candle are as follows: of $3,500 per month; or Option B) a monthly lease cost of $1,000 plus 20% of the company's monthly sales revenue. Wax $7 The company expects to sell approximately 400 candles per month. Other additives $2 Read the requirements. Base $3 C (Consider only the fixed and variable costs related to the lease options.) The total lease cost under Option B is $ 3,000. Which lease option is more attractive for the company under its current sales expectations? The lease option that is more attractive for the company under its current sales expectations is option B, the fixed lease payment plus sales based commission because it results in the lowest total lease costs Requirement 2. At what level of sales (in units) would the company be indifferent between the two lease options? Show your proof. i X Requirements Begin by selecting the equation to determine the indifference point. (Abbreviations used" FC = Fixed costs, VCU = Variable costs per unit) (VCU (option A) x Units) + FC (option A) = (VCU (option B) x Units) + FC (option B) The indifference point is 500 candles. Show your proof. (Consider only the fixed and variable costs related to the lease options. Complete all input cells. Enter a "0" for zero balances.) 1. Which lease option is more attractive for the company under its current sales expectations? Calculate the total lease cost under: Option A Option B 2. At what level of sales (in units) would the company be indifferent between the two lease options? Show your proof. 3. If the company's expected sales were 1,000 candles instead of the projection listed in the exercise, which lease options would be more favorable for the company? Why? Option A Option B 1,000 Total fixed expenses 3,500 $ Total variable expenses 0 3,500 Total lease costs Print Done Choose from any list or enter any number in the input fields and then click Check
