Cathy Rugs is holding a 2-week carpet sale at Josh'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. Josh's Club has offered Cathy Rugs two payment alternatives for the use of space. (Click the icon to view the additional information.) Read the requireding. 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. Calculate the breakeven point in units for option 1, then option 2. (Round your answers up to the nearest whole number. Enter "V" for zero balances.) Requirement 2. At what level of revenuee witl Cathy Rugs earn the same operating income under either option? a. For what range of unit sales will Cathy Rugs prefer option 17 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 coats, SP a Seilling price, VC a Vinable costs, Q = Quintity of units sold. ) Rugs is holding a 2-week carpet sale at Josh's Club, a local warehouse store. Cathy Rugs plans to sell carpets for $700 ea s from a local distributor for $420 each, with the privilege of returning any unsold units for a full refund. Josh's Club has offe Requirements 1. Calculate the breakeven point in units for (a) option 1 and (b) option 2. 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? 3. Calculate the degree of operating leverage at sales of 60 units for the two rental options. 4. Briefly explain and interpret your answer to requirement 3 . Option 1 would be preferred when units sold the units you determined for the level of revenues when the two options ea b. For what range of unit sales will Cathy Rugs prefer option 2? Requirement 2. At what level of revenues will Cathy Rugs earn the same operating income under eather option? a. For what range of unit sales will Cathy Rugs prefer option 17 b. For what range of unit sales will Cathy Rugs preter option 2 ? Begin by determining the formula to calculate the operating income where each option is equal, (Abbrevation used: FC = Fixed costs, SP = Setiing price, VC = Variable costs, Q= Quantity of units sold,) Now caiculate the level of revenues. It will take units to generate the same operating income under either option. The lovel of revenues under either option using these units equal a. For what range of unit sales will Cathy Rugs preter option 1? Option 1 would be preferred when units sold the units you determined for the level of revenues when the two options eamed the same operating income b. For what range of unit sales will Cathy Rugs prefer option 2 ? Option 1 would be preferred when units sold the units you determined tor the level of revenues when the two options eamed the same operating income. b. For what range of unit sales will Cathy Rugs prefer option 2? Cathy Rugs would preler 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, calculatelhe degree of operating leverage for option 1, then option 2. (Rcund your answers to two decimal places, XXX ) 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 answers to two decimal places. X.XXX carpets from a local distributor for $420 each, with the privill ocal warehouse store. Cathy Rugs plans to sell carpets for $700 each. The compa alternatives for the use of space. (i) (Click More info - Option 1: A fixed payment of $8,400 for the sale period - Option 2: 20\% of total revenues earned during the sale period Assume Cathy Rugs will incur no other costs. (a) Optioi (b) Option 2 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 Ca option 1 ? b. For what range of unit sales will Cathy Rugs prefer option 2
