Question
The Creative Candle plans to open a new retail store in Old Town, Maine. The store will sell specialty candles for an average of $35
The Creative Candle plans to open a new retail store in Old Town, Maine. The store will sell specialty candles for an average of $35 each. The average variable costs per candle are as follows: Wax $6 Other additives $2 Base $1.
The company is negotiating its lease for the new location. The landlord has offered two leasing options:
Option A) a lease of $2,800 per month; or | |
Option B) a monthly lease cost of $1,400 plus 20% of the company's monthly sales revenue. |
The company expects to sell approximately 100 candles per month.
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 300 candles instead of the projection listed in the exercise, which lease options would be more favorable for the company? Why? |
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