Q2

The Treat Factory Factory plans to open a new retail store in San Jose, California. The store will sell specialty cupcakes for $5 per cupcake (each cupcake has a variable cost of $2.) The company is negotiating its lease for the new store. The landlord has offered two leasing options: 1) a lease of $2,500 per month; or 2) a monthly lease cost of $900 plus 10% of the company's monthly sales revenue. Requirements 1. If the Treat Factory Factory plans to sell 2,600 cupcakes a month, which lease option would cost less each month? Why? 2. If the company plans to sell 4,700 cupcakes a month, which lease option would be more attractive? Why? Requirement 1. If the Treat Factory Factory plans to sell 2,600 cupcakes a month, which lease option would cost less each month? Why? Begin by calculating the indifference point. Select the equation to determine the indifference point. (Abbreviations used: FC = Fixed costs, VCU = Variable costs per unit) (VCU (option 1) * Units) + FC (option 1) = (VCU (option 2) * Units) + FC (option 2) The indifference point (in number of cupcakes) is