Reference no: EM132587785

Question 1: The Stewart Cake Factory owns a building for its operations. Stewart uses only half of the building and is considering two options. The Candy Store would like to purchase the half of the building that is not being used for $550,000. A 7% commission would have to be paid at the time of purchase. Ice Cream Delight would like to lease the unused half of the building for the next 5 years at $100,000 each year. Stewart would have to continue paying $9,000 of property taxes each year and $1,000 of yearly insurance on the property, according to the proposed lease agreement.

Determine the differential income or loss from the lease alternative.

Differential revenue from alternatives:

Revenue from lease

Revenue from sale

Differential loss from lease

Differential cost of alternatives:

Property tax and insurance Commission expense

Differential cost of lease

Net differential loss from the lease alternative

Question 2: Rachel Cake Factory normally sells their specialty cake for $22. An offer to buy 100 cakes for $19 per cake was made by an organization hosting a national event in the city. The variable cost per cake is $11. A special decoration per cake will add another $1 to the cost. Determine the differential income or loss per cake from selling the cakes.