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Joan Perry has three booth rental options at the bridal fair where she plans to sell her new ...

Joan Perry has three booth rental options at the bridal fair where she plans to sell her new product. The booth rental options are:

Option 1: $4,000 fixed fee
Option 2: $3,000 fixed fee + 5% of all revenues generated at the fair
Option 3: 20% of all revenues generated at the fair.
The product sells for $150 per unit. She is able to purchase the units for $50.00 each.

Which option should Joan choose in order to maximize income assuming there is a 40% probability that 70 units will be sold and a 60% probability that 40 units will be sold?
A) Option 1 with expected operating income of $1,200
B) Option 2 with expected operating income of $1,810
C) Option 3 with expected operating income of $3,640
D) Option 3 with expected operating income of $4,160
E) Option 2 with expected operating income of $4,060

Textbook

Cost Accounting: A Managerial Emphasis, Canadian Edition

Edition: 7^th

Authors: Horngren, Datar, Rajan, Beaubien

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