Reference no: EM132648693

Crossover Printing Company currently leases its only copy machine
for $1,500 a month. The company is considering replacing this leasing agreement with a new contract that is entirely commission based. Under the new agreement, Crossover would pay a commission for its printing at a rate of $10 for every five-hundred pages printed. The company currently charges $0.25 per page to its customers. The paper used in printing costs the company $0.05 per page and other variable costs, including hourly labor, amount to $0.10 per page.

Question 1: What is the company's break-even point under the current leasing agreement? What is it under the new commission-based agreement?

Question 2: For what range of sales levels will Crossover prefer (a) the fixed lease agreement and (b) the commission agreement?

Question 3: Crossover estimates that the company is equally likely to sell 117,500, 27,500, 37,500, 47,500, or 57,500 number of pages of print. How to prepare the table that shows the expected profit at each sales level under the fixed leasing agreement and under the commission-based agreement? What is the expected value of each agreement? Which agreement should Crossover choose?