Question

Plush Decor, Inc., is considering three possible countries for the sole manufacturing site of its newest area rug: Singapore, Brazil, and Spain. All area rugs are to be sold to retail outlets in the United States for $290 per unit. These retail outlets add their own markup when selling to final customers. Fixed costs and variable cost per unit (area rug) differ in the three countries. E: (Click the icon to view the cost data.) Read the requirements. Requirement 1. Compute the breakeven point for Plush Decor, Inc., in each country in (a) units sold and (b) revenues. Determine the formulas for the breakeven point in units and the breakeven point in revenues. Begin with the breakeven point in units, then the breakeven point in revenues. = Breakeven point in units = Breakeven point in revenues Compute the breakeven point for Plush Decor, Inc., in each country in (a) units sold and (b) revenues using the formulas you determined above. Singapore Brazil Spain (a) Breakeven point in units (b) Breakeven point in revenues Requirement 2. If Plush Decor, Inc., plans to produce and sell 70,000 rugs in 2014, what is the budgeted operating income for each of the three manufacturing locations? Comment on the results. Determine the formula to calculate the operating income or loss. -C -D - Operating income (loss) Another way to solve for the operating income or loss is: = Operating income (loss) Compute the budgeted operating income or loss for Plush Decor, Inc., in each country if the company produces and sells 70,000 area rugs in 2014. (Use parentheses or a minus sign when entering operating losses.) Singapore Brazil Spain Budgeted operating income has the lowest breakeven points since it has the fixed costs and the I variable cost per unit. Therefore, at any given selling price will always have the highest operating income. Spain's breakeven point is than the budgeted sales in 2014, therefore an i s budgeted.

Answer 1

	Singapore	Brazil	Spain
Selling price	290	290	290
Variable manufacturing cost	95	90	95
Variable marketing cost	79	55	79
Contribution margin per unit	116	145	116
CM Ratio	0.4	0.5	0.4
Fixed costs	7540000	5220000	16396000
Break even point in Units = Fixed costs/CM per unit	65000	36000	141344.8276
Break even point in revenues = break even units*Revenue per unit	18850000	10440000	40990000
Operating income = Sales - Variable costs - Fixed costs	580000	4930000	-8276000
Another way is Contribution margin*number of units - Fixed costs
Operating income	580000	4930000	-8276000
Brazil has lowest break even point
Lowest fixed costs
Lowest variable cost
Brazil will have the highest operating income
higher than sales
Operating loss is budgeted

Α B 79 79 Singapore Brazil Spain 290 290 290 95 90 95 55 =B2-SUM(B3:34) =C2-SUM(C3:04) =D2-SUM(D3:04) =B5/B2 =C5/C2 =D5/D2 7540000 5220000 16396000 =B7/B5 =C7/C5 =D7/05 =B8*B2 =C8*C2 =D8*D2 =B2*70000-(B3+B4)*70000-B7 =C2*70000-(C3+C4)*70000-C7 =D2*70000-(D3+D4)*70000-D7 1 2 Selling price 3 Variable manufacturing cost 4. Variable marketing cost 5 Contribution margin per unit 6 CM Ratio 7 Fixed costs 8 Break even point in Units = Fixed costs/CM per unit 9 Break even point in revenues = break even units * Revenue per unit 10 Operating income = Sales - Variable costs - Fixed costs 11 Another way is Contribution margin*number of units - Fixed costs 12 Operating income 13 14 Bazil has lowest break even point 15 Lowest fixed costs 16 Lowest variable cost 17 Brazil will have the highest operating income 18 higher than sales 19 Operating loss is budgeted 20 =B5*70000-B7 =C5*70000-C7 =D5*70000-D7