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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

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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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