Option 1 is to rent-to-own for five years a $20,000 large riding zero-turn lawnmower for $4,000 per year and hire one person to operate this for $15 an hour. With this option, the lawns will be mowed very quickly in very little time per lawn.
Option 2 is to rent to own for five years push mowers for $200 per mower for $40 per year and hire high schoolers for $15 per hour to push these 3 mowers. With this option it will take quite a bit longer to mow each lawn.
Questions:
1. Which of these options has a higher fixed cost? Which has higher variable cost per unit?
2. Which of these options has a higher breakeven point?
3. If demand is low and we mow under 20 yards per week, under which option will we lose the most money? Explain.
4. If we operate far beyond our breakeven point (and still within the relevant range of the large mower) and mow 300 yards a week (something we can do with the large riding zero-turn lawnmower). At this level, which option will be more profitable or have the highest potential for profit?
Answers: 2
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Option 1 is to rent-to-own for five years a $20,000 large riding zero-turn lawnmower for $4,000 per...
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