Biscayne\'s Rent-A-Ride rents two models of automobiles: the standard and the de
ID: 2542706 • Letter: B
Question
Biscayne's Rent-A-Ride rents two models of automobiles: the standard and the deluxe. Information follows: Rental price per day Variable cost per day Standard Deluxe $46.00 S54.00 18.40 24.30 Biscayne's total fixed cost is $14,525 per month. Required 1. Determine the contribution margin per rental day and contribution margin ratio for each model that Biscayne's offers. (Round your "Unit Contribution Margin" answers to 2 decimal places.) Standard Deluxe Unit Contribution Margin Contribution Margin Ratio per Day per Day 2. Which model would Biscayne's prefer to rent? Deluxe Model Standard Model 3. Calculate Biscayne's break-even point if the product mix is 50/50. (Do not round intermediate calculations. Round your final answer to the nearest whole number.) k-Even Point Rental Days 4. Calculate the break-even point if Biscayne's product mix changes so that the standard model is rented 75 percent of the time and the deluxe model is rented for only 25 percent. (Do not round intermediate calculations. Round your final answer to the nearest whole number.) k-Even Point Rental DaysExplanation / Answer
1. Unit Contribution Margin = Rental price - Variable cost
Standard = $46.00 - $18.40 = $27.60 per day
Deluxe = $54.00 - $24.30 = $29.70 per day
Contribution margin ratio = Unit Contribution Margin / Rental price
Standard = $27.60 / $46.00 = 60%
Deluxe = $29.70 / $54.00 = 55%
2. Biscayne's would prefer to rent the Standard Model because it has higher Contribution margin ratio.
3. Break even point = Fixed Cost / (weighted average selling price - weighted average variable expenses)
= $14,525 / ($50.00 - $21.35) = 507 Rental days
Weighted average selling price:
= $46 x 50% + $54 x 50% = $50
Weighted average variable expenses:
= $18.40 x 50% + $24.30 x 50% = $21.35
4. Break even point = Fixed Cost / (weighted average selling price - weighted average variable expenses)
= $14,525 / ($48.00 - $19.88) = 516 Rental days
Weighted average selling price:
= $46 x 75% + $54 x 25% = $48.00
Weighted average variable expenses:
= $18.40 x 75% + $24.30 x 25% = $19.88
5. Break even point = Fixed Cost / (weighted average selling price - weighted average variable expenses)
= $14,525 / ($52.00 - $22.83) = 498 Rental days
Weighted average selling price:
= $46 x 25% + $54 x 75% = $52.00
Weighted average variable expenses:
= $18.40 x 25% + $24.30 x 75% = $22.83
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