The store will sell specialty cupcakes for $5 per cupcake (each cupcake has a variable cost of $1.) The company is negotiating its lease for the new store. The landlord has offered two leasing options: 1) a lease of $3,500 per month; or 2) a monthly lease cost of $1,500 plus 8% of the company's monthly sales revenue.

Requirements

1. If the Factory plans to sell $4,500 cupcakes a month, which lease option would cost less each month? Why? 2. If the company plans to sell 7,000 cupcakes a month, which lease option would be more attractive? Why?

Requirement 1. If the Factory plans to sell 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