Doug Litwiller is interested in renting space from D&T Associates for a food service business. D&T Associates has provided three alternatives as follows:
1. $2,000 fixed rent per month
2. $1,000 fixed rent per month plus 2 percent of sales
3. $1,500 fixed rent per month plus 4 percent of monthly sales in excess of $37,500
Required:
1. Determine the indifference point
2. Graph the three alternative using Exhibit 11 as guide.
3. If the average monthly sales are forecast to be $80,000, what will the total lease cost be under each alternative and which do you recommend?