Graphic Printing Company currently leases its only copy machine for $1,800 a month. The company is considering replacing this leasing agreement with a new contract that is entirely commission based. Under the new agreement, Graphic would pay a commission for its printing at a rate of $20 for every 500 pages printed. The company currently charges $0.30 per page to its customers. The paper used in printing costs the company $0.05 per page and other variable costs, including hourly labor, amount to $0.09 per page.

Read the requirements¹.

Requirement 3. Graphic estimates that the company is equally likely to sell 20,000 30,000 40,000 50,000 or 60,000 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 Graphic choose?

Begin with the fixed leasing agreement. (Use parentheses or a minus sign for losses.)

Fixed leasing agreement

Sales Level Profit/Loss Expected Profit/(Loss)

20,000 ____________ ________________

30,000 ____________ _______________

40,000 ___________ ______________

50,000 ____________ ________________

60,000 ____________ _______________

Total Expected profit/(loss) ________________

Next, calculate the expected _______________ profit at each sales level under the commission based agreement.

Commission-based agreement

Sales Level Profit/Loss Expected Profit/(Loss)

20,000 ____________ ________________

30,000 ____________ _______________

40,000 ___________ ______________

50,000 ____________ ________________

60,000 ____________ _______________

Total Expected profit/(loss) ________________

Graphic should choose (1)_______________ agreement