Tait Rugs is holding a carpet sale at Shauns Club, a local warehouse store. Tait Rugs plans to sell carpets for $1,000 each. The company will purchase the carpets from a local distributor for $400 each, with the privilege of returning any unsold units for a full refund. Shauns Club has offered Tait Rugs two payment alternatives for the use of space.

• Option 1: A fixed payment of $17,400 for the sale period
• Option 2: 20% of total revenues earned during the sale period

Assume Tait Rugs will incur no other costs.

1. Calculate the breakeven point in units for option 1 and option 2.
2. At what level of revenues will Tait Rugs earn the same operating income under either option?

1. For what range of unit sales will Tait Rugs prefer option 1?
2. For what range of unit sales will Tait Rugs prefer option 2?

3. Calculate the degree of operating leverage at sales of 87 units for the two rental options
4. Briefly explain and interpret your answer to requirement (c).