A rug company is holding a 2-week carpet sale at a local warehouse store. They plan to sell carpets for $500 each. The company will purchase the carpets from a local distributor for $350 each, with the option to return any unsold units for a full refund. The warehouse offered two payment alternatives for the use of space - A fixed payment of $5,100 for the sale period or 10% of total revenues earned during the sale. The rug company will not have any other costs.

Calculate the breakeven point in units for each payment alternatives

Begin by determining the formula to calculate the breakeven point in units.

Number of units to breakeven = _____________ / ______________

At what level of revenues will the rug company earn the same operating income under either option?

For what range of unit sales will they prefer option 1?

For what range of unit sales will they prefer option 2?

Determine the degree of operating leverage at sales of 102 units for the two rental options.