Question
Chloe Rugs is holding a 2-week carpet sale at Jake's Club, a local warehouse store. Chloe Rugs plans to sell carpets for $800 each. The
Chloe Rugs is holding a 2-week carpet sale at Jake's Club, a local warehouse store. Chloe Rugs plans to sell carpets for $800 each. The company will purchase the carpets from a local distributor for $560 each, with the privilege of returning any unsold units for a full refund. Jake's Club has offered Chloe Rugs two payment alternatives for the use of space.
More Info
Option 1: A fixed payment of $8,640 for the sale period
Option 2: 15% of total revenues earned during the sale period
assume Chloe 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 Chloe Rugs earn the same operating income under either option? |
| a. For what range of unit sales will Chloe Rugs prefer Option 1? | |
| b. For what range of unit sales will Chloe 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. |
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The Definitive Guide To Blockchain For Accounting And Business
Authors: Saurav K. Dutta
1st Edition
1789738687, 9781789738681
