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Tasty Treats Indifferent Point

Tasty Treats plans to open a new retail store in Medina, Ohio. Tasty Treats will sell specializing cupcakes for $5 per cup cake.(Each cupcake has a variable cost of $2). The company is negotiating its least for the new Medina location. The landlord has offered two leasing options,1) lease of $2500 per month, or 2) A monthly lease cost of $900 plus 10% of the company monthly sales revenue.

Requirements:

1. If Tasty Treats plans to sell 2400 cupcakes a month, which lease option would cost each month? Why?
2. If the company plans to sell 4,400 cupcakes a month, which lease option would be more attractive? Why?

Beginning calculating the indifferent point.
VCU (option1)x units +FC (option 1) = VCU (option 2) x units + FC (option 1)

What would be the indifferent point?

Solution Preview

1.
x = 2400
option 1 total cost = 2*2400 + 2500 = $7,300
option 2 total cost = 2*2400 + 900 + 0.1*5*2400 = $6,900

Option 1 total cost is ...

Solution Summary

Two cost options are weighed and the indifference point found in this brief solution of calculations.

$2.19