Question

Batterson Corporation leases its corporate headquarters building. This lease cost is fixed with respect to the...

Batterson Corporation leases its corporate headquarters building. This lease cost is fixed with respect to the company's sales volume. In a recent month in which the sales volume was 28,000 units, the lease cost was $697,200.

To the nearest whole cent, what should be the average lease cost per unit at a sales volume of 26,400 units in a month? (Assume that this sales volume is within the relevant range.)

Multiple Choice

  • $25.66

  • $24.90

  • $23.88

  • $26.41

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Homework Answers

Answer #1

Option d] $ 26.41 is correct.

Explanation:

Let's understand while taking battersin as B and lessor as A

There is lease agreement between Party A and Party B, where Party A is owner [Lessor] of Building and B is lessee of Building. B agreed to pay a fixed amount of lease cost,which will vary as per sales volume.However there is range in which the lease cost will remain same, and if this range is exceeded then the increased lease cost must be paid by B.This cost has feature of semi fixed cost,which will increase with increase in capacity [Volume].

Since the question suggest that the sales volume has been in the range, hence the lease cost in totatlity will not be increased.The per unit cost will be total lease cost divided be sales volume.

Lease cost per unit would be = $ 697,200 / 26,400

= $ 26.41 per unit.

Please comment for any explanation or query pertaining to question.

Thanks,

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