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Calculate the degree of operating leverage at sales

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Reference no: EM133153742

Question - Broadpull Rugs is holding a 4-week carpet sale at Tryst's Club, a local warehouse store. Broadpull Rugs plans to sell carpets for $1,500 each. The company will purchase the carpets from a local distributor for $900 each, with the privilege of returning any unsold units for a full refund. Tryst's Club has offered Broadpull Rugs two payment alternatives for the use of space.

Option 1: 25% of total revenues earned during the sales period.

Option 2: A fixed payment of $30,000 for the sale period Assume Broadpull Rugs will incur no other costs.

Required -

1. Calculate the breakeven point in units for (a) option 1 and (b) option 2.

2. At what level of revenues will Broadpull Rugs earn the same operating income under either option?

a. For what range of unit sales will Broadpull Rugs prefer option 1?

b. For what range of unit sales will Broadpull Rugs prefer option 2?

3. Calculate the degree of operating leverage at sales of 80 units for the two rental options.

4. Briefly explain and interpret your answer to requirement 3.

Reference no: EM133153742

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