Q:
The Cupcake Factory plans to start a new retail store in Medina, Ohio. The Cupcake Factory may sell specialty cupcakes for $5 per cupcake (every cupcake has a variable cost of $2.) The company is negotiating its lease for the new Medina location. The landlord has provide two leasing options:
1) a lease of $2,000 per month; or
2) a monthly lease cost of $1,000 plus 4 percent of the company's monthly sales revenue.
Question 1) If the Cupcake Factory plans to sell 1,000 cupcakes a month, which lease option could cost less each month? Why?
Question 2) If the company plans to sell 1,800 cupcakes a month, which lease option could be more striking? Why?