Biscayne\'s Rent-A-Ride rents two models of automobiles: the standard and the de

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 $70.00 $80.00 26.60 33.60 Biscayne's total fixed cost is $33,294 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 per Day per Day Contribution Margin Ratio 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 Days

Explanation / Answer

Solution 1:

Solution 2:

Contribution margin for deluxe model is higher than contribution margin for standard model. Therefore Biscayne will prefer to rent deluxe model

Solution 3:

If product mix is 50:50 then weighted average contribution margin per day = ($43.40*50%) + ( $46.40*50%)

= $44.90

Fixed cost = $33,294

Breakven point = Fixed cost / Weighted average contribution per day = $33,294 / $44.90 = 742 days

Solution 4:

If product mix is 75:25 then weighted average contribution margin per day = ($43.40*75%) + ( $46.40*25%)

= $44.15

Fixed cost = $33,294

Breakven point = Fixed cost / Weighted average contribution per day = $33,294 / $44.15 = 754 days

Solution 5:

If product mix is 25:75 then weighted average contribution margin per day = ($43.40*25%) + ( $46.40*75%)

= $45.65

Fixed cost = $33,294

Breakven point = Fixed cost / Weighted average contribution per day = $33,294 / $45.65 = 729 days

Computation of Contribution Margin per day and contribution margin ratio Particulars Standard Deluxe Rental price per day $70.00 $80.00 Variable cost per day $26.60 $33.60 Contribution margin per day $43.40 $46.40 Contribution margin ratio (Contribution margin per day / Rental price per day) 62% 58%

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