Question

Homework: Chapter 3 HW Score: 63%, 5.67 of 9 pts 8 of 9 (9 complete) Score: 0.16 of 1 pt %E3-31 (similar to) E Question Help Area Rugs, Inc. is considering three possible countries for the sole manufacturing site of its newest area rug: Brazil, Singapore, and France. All area rugs are to be sold to retail outlets in the United States for $320 per unit. These retail outlets add their own markup when selling to final customers. Fixed costs and variable cost per unit (area Tug) difer in the three countries Click the icon to view the cost data) Read the requirements Requirement 1. Compute the breakeven point for Area Rugs, 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 Fixed costs Contribution margin per unit Breakeven point in units Breakeven point in units Sales price per unit Breakeven point in revenues Compute the breakeven point for Area Rugs, Inc. in each country in (a) units sold and (b) revenues using the formulas you determined Brazil above. Enter any number in the edit fields and then click Check Answer. y remaining Clear A Check Answer MacBook Pro

Answer 1

a.

Answer:

	Brazil	Singapore	France
Break-even Units	55000	31000	160000
Breakeven Revenue	17,600,000	9,920,000	51,200,000

Calculation:

Country	Sales Price to Retail Outlets (1)	Annual fixed costs (2)	Variable Manufacturing cost per Rug(3)	Variable Marketing anddistribution cost per Rug(4)	Contribution Margin Per Rug (5)=(1)-(3)-(4)	Break-even Units(6)=(2)/(5)	Breakeven Revenue(7)=(6)*(1)
Brazil	320	10,120,000	50	86	184	55000	17,600,000
Singapore	320	6,200,000	45	75	200	31000	9,920,000
France	320	25,600,000	60	100	160	160000	51,200,000

b.

Answer:

	Brazil	Singapore	France
Operating Income for Budgeted Sales of 90,000 Rugs	6440000	11800000	-11200000

Calculation:

Country	Annual fixed costs (2)	Contribution Margin Per Rug (5)	Operating Income for Budgeted Sales of 90,000 Rugs (8)=[90000*(5)]-(2)
Brazil	10,120,000	184	6,440,000
Singapore	6,200,000	200	11,800,000
France	25,600,000	160	(11,200,000)

France has the lowest contribution margin per Rug and it has the highest breakeven point because
it has dramatically higher fixed costs, $25,600,000. Also that led to an operating loss when 90,000 sales are made. Brazil has the middle contribution margin, also dramatically medium fixed costs. It has the medium breakeven revenue. Area Rugs should move its production to Singapore, because it has the highest contribution margin per rug, it also has very low (compared to the other countries) fixed costs. At budgeted unit sales of 90,000 rugs, Area Rugs will maximize operating income by producing in Singapore. Prior to making this decision, Area Rugs may want to contemplate sales at various other levels to ensure that Singapore is still preferred under different likely levels of sales.