10:59 PM mathxl.com Do Homework - ACG 2071 Fall 2017 Homework: Ch. 9 CVP Analysi

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10:59 PM mathxl.com Do Homework - ACG 2071 Fall 2017 Homework: Ch. 9 CVP Analysis Score: 0 of 1 pt E7-34A (similar to) 7018(0 complete) Hw Score: 0%, 0 of 8 pts The Candle Factory plans to open a new retail store in Saco, Maine. average variable costs per candle are as follows Question Help * an average of $30 each. The Wax $6 offered two leasing options: Option A) a lease of $3,000 per month; or Option B) a monthly lease cost of $1,650 plus 10% of the company's monthly sales leasing options: The landlord has revenue. The company expects to sell approximately 250 candles per month. Read the requirements Base $3 Requirement 1. Which lease Option B. option is more attractive for the company under its current sales expectations? Calculate the total lease cost under Option A and Begin by identifying the formula to calculate the total costs Choose from any drop-down list and then click Check Answer. 7 parts Clear All

Explanation / Answer

Req 1:Monthly Lease cost under both the options: Option A Monthly Lease costs    $ 3,000 Expectd monthly sales revenue (250 candles @30) $ 7500 Option B Monthly fixed lease cost $ 1650 per month Variable cost @10% of sales revenue (10% of 7500)   $ 750 Total lease cost under Option B: Fixed lease cost   + Variable @10% of Sales revenue   = Total Lease cost 1650   + 750   = 2400 Therefore, From company point of view, Option B is more attractive under current sales level Req2: Indifference sales level Let Number of candles to be sold at indifference point be X Selling price be $ 30 per unit Therefore, Sales revenue be 30*X Lease cost under Option A be $ 3000 Lease cost under Option B as per above formula be: Lease cost under Option B =1650 + 10% of 30*X At indifference point, both cost should be same, therefore, the equation be as follows: Lease cost at option A = Lease cost at option B 3000 = 1650 + 10% of 30 *X Therefore, number of units X = 450 candles Req3: If Sales units be 650 candles Selling price $ 30 per unit Sales revenue $ 19,500 Lease cost under Option A = $ 3,000 Lease cost under option B as per formula is:                  ( 1650 + 10% of 19500) = $ 3,600 Hence, Option A is more attractive for company

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