Curt Rugs is holding a 2-week carpet sale at Jacob's Club, a local warehouse store. Curt Rugs plans to sell carpets for $1000 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. Jacob's Club has offered Curt Rugs two payment alternatives for the use of space. Option 1: A fixed payment of $17400 for the sale period Option 2: 20% of total revenues earned during the sale period. Assume Curt Rugs will incur no other costs. Calculate the breakeven point in units for (a) option 1 and (b) option 2. At what level of revenues will CurtRugs earn the same operating income under either option? For what range of unit sales will Curt Rugs prefer Option 1? For what range of unit sales will Curt Rugs prefer Option 2? Calculate the degree of operating leverage at sales of 87 units for the two rental options. Briefly explain and interpret your answer to the above calculation
Curt Rugs is holding a 2-week carpet sale at Jacob's Club, a local warehouse store. Curt Rugs plans to sell carpets for $1000 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. Jacob's Club has offered Curt Rugs two payment alternatives for the use of space. Option 1: A fixed payment of $17400 for the sale period Option 2: 20% of total revenues earned during the sale period. Assume Curt Rugs will incur no other costs. Calculate the breakeven point in units for (a) option 1 and (b) option 2. At what level of revenues will CurtRugs earn the same operating income under either option? For what range of unit sales will Curt Rugs prefer Option 1? For what range of unit sales will Curt Rugs prefer Option 2? Calculate the degree of operating leverage at sales of 87 units for the two rental options. Briefly explain and interpret your answer to the above calculation
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Chapter17: Advanced Issues In Revenue Recognition
Section: Chapter Questions
Problem 15RE: GameDay sells recreational vehicles along with secure parking storage to customers. Game Day sells...
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Curt Rugs is holding a 2-week carpet sale at Jacob's Club, a local warehouse store. Curt Rugs plans to sell carpets for $1000 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. Jacob's Club has offered Curt Rugs two payment alternatives for the use of space.
Option 1: A fixed payment of $17400 for the sale period
Option 2: 20% of total revenues earned during the sale period.
Assume Curt Rugs will incur no other costs.
Calculate the breakeven point in units for (a) option 1 and (b) option 2.
| At what level of revenues will CurtRugs earn the same operating income under either option? |
| For what range of unit sales will Curt Rugs prefer Option 1? |
| For what range of unit sales will Curt Rugs prefer Option 2? |
| Calculate the degree of operating leverage at sales of 87 units for the two rental options. |
| Briefly explain and interpret your answer to the above calculation |
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