MANAGERIAL ACCOUNTING

Hart Graphics is considering leasing a digital production press from Xerox to produce pictures for customized color mail-order catalogues. Hart can charge $0.40 per picture and estimates it will incur costs of $0.24 per picture to cover paper, ink, and operating costs, all variable. Xerox offers Hart two leasing options. Option A is a fixed fee of $10,000 plus $0.04 per picture. Option B is a fixed fee of $14,000 plus $0.02 per picture.

Q1. Find the minimum quantity Q of pictures produced and sold for which Hart should lease the Xerox digital production press using Option B.

Suppose Hart does not have the option of leasing the press and is instead considering buying the digital production press. The press would cost $240,000, last 15 years, have no salvage value, and be depreciated on a straight-line basis.

Q2. What is the smallest quantity Q of pictures made and sold each year for which Hart should make this investment?