Question

Carmel Rugs is holding a 2-week carpet sale at Jean’s Club, a local warehouse store. CarmelRugs plans to sell carpets for $1,000 each. The company will purchase the carpets from a localdistributor for $400 each, with the privilege of returning any unsold units for a full refund. Jean’sClub has offered Carmel Rugs two payment alternatives for the use of space. Option 1: A fixed payment of $17,400 for the sale period 3-1Option 2: 20% of the total revenues earned during the sale period sameAssume Carmel Rugs will incur no other cost. Calculate the break event point in the units for (a) option 1 and (b) option 2.

Answer 1

Answer:

Instructions are listed below

Explanation:

Giving the following information:

CarmelRugs 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.

Jean’sClub has offered Carmel Rugs two payment alternatives for the use of space.

Option 1:

Fixed cost= $17,400 for the sale period

Option 2: 20% of the total revenues earned during the sale period.

Break-even point= fixed costs/contribution margin

Option 1:

Break-even point= 17400/(1000-400)= 29 carpets

Option 2:

Break-even point= (400+200)/(1000-400)=1 carpet (no fixed cost)