Rhiannon

Heninger is a well-known software engineer. Her specialty is writing software code used in maintaining the security of credit card information. Heninger is approached by the Edmundston Commerce Group (ECG). It offers to pay her $156,000 for the right to use her code under licence in its eprocurement software package. Heninger rejects this offer because it provides her with no additional benefits if the eprocurement package is a runaway success. Both parties eventually agree to a contract in which ECG pays Heninger a flat fee of $156,000 for the right to use her code in up to 12,000 packages. If eprocurement sells more than 12,000 packages, Heninger receives $10.40 for each package sold beyond the 12,000 level.

Required

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Part 1

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Part 2

Requirement 1. What is the unit cost of ECG for Heninger's software code included in its eprocurement package if it sells (a)1,800,

(b)5,800,

12,000,

and (d)18,000 packages? Comment on the results.

Find the unit cost for each number of packages sold. (Round your answers to the nearest cent as needed.)

	Number of packages sold	Cost per package
(a)	1,800
(b)	5,800
(c)	12,000
(d)	18,000

Part 3

Comment on the results from the previous step. Choose the correct answer below.

A.

The unit cost decreases as the number of packages sold increases. The total cost is a fixed cost up to

12,000

units and then is a variable cost beyond

12,000

units.

B.

The unit cost decreases as the number of packages sold increases until

12,000,

and then the unit cost increases. The total cost is a fixed cost up to

12,000

units and then is a variable cost beyond

12,000

units.

C.

The unit cost is fixed as the number of packages sold increases until

12,000,

and then the unit cost decreases. The total cost is a variable cost up to

12,000

units and then is a fixed cost beyond

12,000

units.

D.

The unit cost increases as the number of packages sold increases. The total cost is a variable cost based on the number of packages sold.

Part 4

Requirement 2. For prediction of ECG's total cost of using Heninger's software code in eprocurement, which unit cost (if any) of (a) to (d) in requirement 1 would you recommend ECG use? Explain.

A.

ECG should use the unit cost from situation (a) because it has the lowest unit cost.

B.

ECG should use the unit cost from situation (b) because it has the lowest unit cost.

C.

ECG should use the unit cost from situation (c) because it has the lowest unit cost.

D.

ECG should use the unit cost from situation (d) because it has the lowest unit cost.

E.

ECG should not use any of the unit costs because the total cost is a fixed amount up to

12,000

units and then is a mixed cost beyond

12,000

units.