1 point(s) possible Submit quiz Cathy Rugs is holding a 2-week carpet sale at Jack's Club, a local warehouse store. Cathy Rugs plans to sell carpets for $700 each. The company will purchase the carpets from a local distributor for $420 each, with the privilege of returning any unsold units for a full refund. Jack's Club has offered Cathy Rugs two payment alternatives for the use of space. i (Click the icon to view the additional information.) Requirement 2. At what level of revenues will Cathy Rugs earn the same operating income under either option? a. For what range of unit sales will Cathy Rugs prefer option 1? b. For what range of unit sales will Cathy Rugs prefer option 2? Begin by determining the formula to calculate the operating income where each option is equal. (Abbreviation used: FC = Fixed costs, SP = Selling price, VC = Variable costs, Q = Quantity of units sold.) Option 1 11 Option 2 Snipping Tool SP * Q) - ( VC * Q) - FC =( SP * Q) - ( VC * Q) - FC File Edit Tools Help Now calculate the level of revenues. New Mode - Delay It will take units to generate the same operating income under either option. The level of revenues under either option using these units equal More info a. For what range of unit sales will Cathy Rugs prefer option 1? Option 1 would be preferred when units sold the units you determined for the level of revenues when the two options earned the same operating inc - Option 1: A fixed payment of $8,400 for the sale period - Option 2: 20% of total revenues earned during the sale D. For what range of unit sales will Cathy Rugs prefer option 2? Cathy Rugs would prefer option 2 when units sold the units you determined for the level of revenues when the two options earned the same operating income. Requirement 3. Calculate the degree of operating leverage at sales of 60 units for the two rental options. Begin by determining the formula to calculate the degree of operating leverage. Then, calculate the degree of operating leverage for option 1, then option 2. (Round your answers to two decimal places. XXX) Degree of operating leverage Option 1 Option 2 Requirement 4. Briefly explain and interpret your answer to requirement 3. The results indicate that, when sales are 60 units, a percentage change in will result in times that percentage change in for option 1 and times that percentage change in Next