Question
In: Accounting
Direct Printing Company currently leases its only copy machine for $1,600 a month. The company is...
Direct Printing Company currently leases its only copy machine for $1,600 a month. The company is considering replacing this leasing agreement with a new contract that is entirely commission based. Under the new agreement, Direct would pay a commission for its printing at a rate of $ 10 for every 500 pages printed. The company currently charges $0.19 per page to its customers. The paper used in printing costs the company $ 0.01 per page and other variable costs, including hourly labor, amount to $ 0.10 per page.
|
1. |
What is the company's breakeven point under the current leasing agreement? What is it under the new commission-based agreement? |
|
2. |
For what range of sales levels will Direct prefer (a) the fixed lease agreement and (b) the commission agreement? |
|
3. |
Direct estimates that the company is equally likely to sell 26,000, 36,000, 46,000, 56,000, or 66,000 pages of print. Using information from the original problem, prepare a 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 Direct choose? |
Solutions
Expert Solution
| 1) | Current leasing agreement | |||||
| Charges from customer | 0.19 | |||||
| Printing cost | 0.01 | |||||
| Variable cost | 0.1 | |||||
| Less | Total cost | 0.11 | (0.01+0.1) | |||
| Contribution | 0.08 | (0.19-0.11) | ||||
| Fixed lease payment | 1600 | |||||
| Breakeven point = Fixed cost/Contribution per unit= 1600/0.08 = 20,000 units | ||||||
| Under new agreement | ||||||
| Charges from customer | 0.19 | |||||
| Printing cost | 0.01 | |||||
| Variable cost | 0.1 | |||||
| Commission ( 10, for 500) | 0.02 | |||||
| Less | Total cost | 0.13 | (0.01+0.1+0.02) | |||
| Contribution | 0.06 | (0.19-0.13) | ||||
| Breakeven point = Fixed cost/Contribution per unit= 0/0.06 = 0 | ||||||
| Sale of 1 unit will give profit | ||||||
| 2) | ||||||
| Here we will calculate indifference point | ||||||
| Suppose no of units is (x) | ||||||
| 0.19- 0.11(x)- 1600 = | 0.19-0.13(x) | |||||
| 0.02(x) = | 1600 | |||||
| (x) = | 80000 | |||||
| Sales between 0 to 80,000 units , both options could be prefered | ||||||
| Fixed leasing agreement | ||||||
| 3) | a) | b) | c) | d) | e) | f) |
| Sales level | Contribution per unit (0.08) | Fixed cost | Profit/Loss (b-c) | Probability | Expected profit | |
| 26000 | 2080 | 1600 | 480 | 0.2 | 96 | |
| 36000 | 2880 | 1600 | 1280 | 0.2 | 256 | |
| 46000 | 3680 | 1600 | 2080 | 0.2 | 416 | |
| 56000 | 4480 | 1600 | 2880 | 0.2 | 576 | |
| 66000 | 5280 | 1600 | 3680 | 0.2 | 736 | |
| Total | 10400 | 2080 | ||||
| New agreement based on commission | ||||||
| a) | b) | c) | d) | e) | f) | |
| Sales level | Contribution per unit (0.06) | Fixed cost | Profit/Loss (b-c) | Probability | Expected profit | |
| 26000 | 1560 | 0 | 1560 | 0.2 | 312 | |
| 36000 | 2160 | 0 | 2160 | 0.2 | 432 | |
| 46000 | 2760 | 0 | 2760 | 0.2 | 552 | |
| 56000 | 3360 | 0 | 3360 | 0.2 | 672 | |
| 66000 | 3960 | 0 | 3960 |
 ekkarill92 answered 1 year agoRelated SolutionsPrinting Company currently leases its only copy machine for $ 1 comma 300$1,300 a month. The...Printing Company currently leases its only copy machine for
$ 1 comma 300$1,300
a month. The company is considering replacing this leasing
agreement with a new contract that is entirely commission based.
Under the new agreement,
FlexoFlexo
would pay a commission for its printing at a rate of
$ 20$20
for every 500 pages printed. The company currently charges
$0.300.30
per page to its customers. The paper used in printing costs the
company
$ 0.07$0.07
per page and other variable...
Question 5 Blueline Printing Company currently leases its only copy machine for $1,100 a month. The...Question 5 Blueline Printing Company currently
leases its only copy machine for $1,100 a month. The company is
considering replacing this leasing agreement with a new contract
that is entirely commission based. Under the new agreement,
Blueline would pay a commission for its printing at a rate of $10
for every 500 pages printed. The company currently charges $0.32
per page to its customers. The paper used in printing costs the
company $0.09 per page and other variable costs, including...
Printing Company currently leases its only copy machine for $ 1 comma 300$1,300 a month. The...Printing Company currently leases its only copy machine for
$ 1 comma 300$1,300
a month. The company is considering replacing this leasing
agreement with a new contract that is entirely commission based.
Under the newagreement,
FlexoFlexo
would pay a commission for its printing at a rate of
$ 20$20
for every 500 pages printed. The company currently charges
$0.300.30
per page to its customers. The paper used in printing costs the
company
$ 0.07$0.07
per page and other variable costs,...
The Target Copy Company is contemplating the replacement of its old printing machine with a new...The Target Copy Company is contemplating the replacement of its
old printing machine with a new model costing $ 715. The new
machine will operate for 3 years and then project will be shut down
and all equipment sold. The old machine, which originally cost $
518, has 2 years of depreciation remaining and a current book value
of 22% of the original cost. The old machine has a current market
value of $ 268 and should be worth $...
MARC Printing Ltd. is considering the purchase of a new copy machine. The machine will cost...MARC Printing Ltd. is considering the purchase of a new copy
machine. The machine will cost $90,000 plus $6,000 for shipping and
$4,000 for installation. The machine’s useful life is four years
and falls under the straight line depreciation (with no salvage
value). Operating of this printing machine requires additional
inventories of $32.000. On the other hand, $12.000 of the
inventories will be on account and receivable of the project. Will
be $5.000. MARC Ltd. forecasts that new machine will...
Campus Copy & Printing wants to predict copy machine repair expense at different levels of copying...Campus Copy & Printing wants to
predict copy machine repair expense at different levels of copying
activity (number of copies made). The following data have been
gathered:
Copy Machine
Month
Repair
Expense
Copies Made
May
$ 9,000
300,000
June
13,000
550,000
July
22,000
950,000
August
17,000
750,000
September
10,500
400,000
Required
Determine the fixed and variable
components of repair expense using the high-low method. Use copies
made as the measure of activity. Round cost per copy to...
An agricultural accounting firm needs a new copy machine. If it leases the copier on a...An agricultural accounting firm needs a new copy machine. If it
leases the copier on a five year lease, five rental payments of
$900 will be made at the end of the year, including the first.
Alternatively, the firm could purchase the copier. If purchased, an
initial investment of $500 would be required. Amortized loan
payments of $500 would then be made at the end of years 1-5. The
copier would have no salvage value at the end of five...
Paper Printing Company purchased a copy machine for $ 65 comma 000$65,000 on January 1, 2010....Paper Printing Company purchased a copy machine for
$ 65 comma 000$65,000
on January 1, 2010. The copy machine had an estimated useful
life of five years or
1 comma 000 comma 0001,000,000
copies. Paper Printing estimated the copy machine's salvage
value to be
$ 5 comma 000$5,000.
The company made
250 comma 000250,000
copies in 2010 and
190 comma 000190,000
copies in 2011.Requirements
LOADING...
1. Calculate the depreciation expense for each
year using the straight line method.
-
=...
Lexigraphic Printing Company is considering replacing a machine that has been used in its factory for...Lexigraphic Printing Company is considering replacing a machine
that has been used in its factory for four years. Relevant data
associated with the operations of the old machine and the new
machine, neither of which has any estimated residual value, are as
follows:
Old Machine
Cost of machine, 10-year life
$89,000
Annual depreciation
(straight-line)
8,900
Annual manufacturing costs,
excluding depreciation
23,600
Annual non-manufacturing operating
expenses
6,100
Annual revenue
74,200
Current estimated selling price of
machine
29,700
New Machine
Purchase price...
On January 1, 2019, Seek Company purchased a copy machine. The machine costs $960,000, its estimated...On January 1, 2019, Seek Company purchased a copy machine. The
machine costs $960,000, its estimated useful life is 8 years, and
its expected salvage value is $60,000.
What is the depreciation expense for 2020 using
double-declining-balance method?
Select one:
A. $157,500
B. $ 105,000
C. $180,000
D. $240,000
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
ADVERTISEMENT
|