Use the Graphical Approach to CVP Analysis to Solve the Following

question 6

Short Answer

Use the graphical approach to CVP analysis to solve the following problem.
Huntsville Office Supplies (HOS) is evaluating the profitability of leasing a photocopier for its customers to use on a self-serve basis at 10¢ per copy. The copier may be leased for $300 per month plus 1.5¢ per copy on a full-service contract. HOS can purchase paper at $5 per 500-sheet ream. Toner costs $100 per bottle, which in normal use will last for 5,000 pages. HOS is allowing for additional costs (including electricity) of 0.5¢ per copy.
a) How many copies per month must be sold in order to break even?
b) What will be the increase in monthly profit for each 1,000 copies sold above the break-even point?

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Definitions:

Rights Offering

A rights offering is a method by which a company raises capital by offering existing shareholders the right to buy additional shares directly, usually at a discount to the current market price.

Existing Stock

Securities or inventory that are currently held or available for sale in the market.

Tombstones

Advertisements in financial publications summarizing the terms of a new issue of securities.