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Do Homework - Nicholas Palazzolo Google Chrome Secure https://www.mathxl.com/Student/PlayerHomework.aspx?homeworkid=476806955&questionid-2;&flushed-true;&cid;=4955309&centerwin-yes; Cost Accounting Spring 2018 Section 2 Nicholas Palazzolo 3121118 10:23 AM Homework: Chapter 3 Homework Score: 1.39 of 3 pts &E3-25; (similar to) Save 2 of 3 (3 complete) HW Score: 77.6%, 7.76 of 10 pts Question Help 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. Option 1: A fixed payment of $8,400 for the sale period Option 2: 20% of total revenues eamed during the sale period Assume Cathy Rugs will incur no other costs. Read the requirements Requirements Requirement 1. Calculate the breakeven point in units for (a) option 1 and (b) option 2 1. 2. Calculate the breakeven point in units for (a) option 1 and (b) option 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 21? Calculate the degree of operating leverage at sales of 60 units for the two rental options. Briefly explain and interpret your answer to requirement 3. Begin by determining the formula to calculate the breakeven point in units. Number of units to breakeven 3. 4. Print Done Choose from any drop-down list and then click Check Answer parts remaining Clear All Check Answer

Explanation / Answer

Let ‘X’ be thequantity of carpets sold

Breakeven point under Option 1

$ 700 X - $ 420 X     = $ 8400

$ 280 X          = $ 8400       

X         = $ 8400 / $ 280      

Breakeven point = 30 CARPETS

Breakeven point under Option 2

$ 700 X - $ 420 X - (0.20 x $ 700 X ) = 0

$ 140 X          =          0

X         =          0

Breakeven point under Option 2 = 0

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