Contribution margin per page
assuming $20 per 500 page
commission agreement
= $0.15 – $0.04a – $0.04 – $.05 = $0.02 per page
Fixed costs = $0
Breakeven point =
Fixed costs $0 0 pages
Contribution margin per page $0.02 per page
==
(i.e., Deckle makes a profit no matter how few pages it sells)
a$20 500 pages = $0.04 per page
2. Let
x
denote the number of pages Deckle must sell for it to be indifferent between the
fixed leasing agreement and commission based agreement.
To calculate
x
we solve the following equation.
$0.15
x
– $0.04
x
– $0.05
x
– $1,200 = $0.15
x
– $0.04
x
– $0.04
x
– $.05
x
$0.06
x
– $1,200 = $0.02
x
$0.04
x
= $1,200
x
= $1,200 ÷ $0.04 = 30,000 pages
For sales between 0 to 30,000 pages, Deckle prefers the commission-based agreement
because in this range, $0.02
x
> $0.06
x
– $1,200. For sales greater than 30,000 pages,
Deckle prefers the fixed leasing agreement because in this range, $0.06
x
– $1,200 > $.02
x
.
