Question
9. More info Dialog content starts Option 1: A fixed payment of $8,640for the sale period Option 2: 20% of total revenues earned during the
9. More info
Dialog content starts
Option 1: A fixed payment of $8,640for the sale period
Option 2: 20% of total revenues earned during the sale period
Assume Cover Rugs will incur no other costs.
Requirements
1. | Calculate the breakeven point in units for (a) option 1 and (b) option 2. |
2. | At what level of revenues will Cover Rugs earn the same operating income under either option? |
a. For what range of unit sales will Cover Rugs prefer Option 1? | |
b. For what range of unit sales will Cover Rugs prefer Option 2? | |
3. | Calculate the degree of operating leverage at sales of 72 units for the two rental options. |
4. | Briefly explain and interpret your answer to requirement 3. |
Cover Rugs is holding a 2-week carpet sale at Jacob's Club, a local warehouse store.
Cover Rugs plans to sell carpets for$600each. The company will purchase the carpets from a local distributor for $330 each, with the privilege of returning any unsold units for a full refund.
Jacob's Club has offered Cover Rugs two payment alternatives for the use of space.
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requirements
Question content area bottom
Part 1
Requirement 1. Calculate the breakeven point in units for (a) Option 1 and (b) Option 2.
Begin by determining the formula to calculate the breakeven point in units.
Number of units to breakeven | = |
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