=+4-25 KK Operating leverage OBJECTIVES 1, 2, 4, 5, 6 Rainbow Rugs is holding a two-week carpet sale at Terry’s Club, a local warehouse store. Rainbow Rugs plans to sell carpets for

$500 each. The company will purchase the carpets from a local distributor for $350 each, with the privilege of returning any unsold units for a full refund. Terry’s Club has offered Rainbow Rugs two payment alternatives for the use of space:

Option 1: A fixed payment of $5000 for the sale period Option 2: 10% of total revenues earned during the sale period Assume Rainbow Rugs will incur no other costs.

Required 1 Calculate the break-even point in units for:

(a) option 1 and

(b) option 2.