Question

Biscayne's Rent-A-Ride rents two models of automobiles: the standard and the deluxe. Information follows: Rental price per day Variable cost per day Standard Deluxe $70.00 $87.00 25.20 34.80 Biscayne's total fixed cost is $33,294 per month. Required: 1. Determine the contribution margin per rental day and contribution margin ratio for each model that Biscayne's offers. 2. Which model would Biscayne's prefer to rent? 3. Calculate Biscayne's break-even point if the product mix is 50/50. 4. Calculate the break-even point if Biscayne's product mix changes so that the standard model is rented 75 percent of the time and the deluxe model is rented for only 25 percent. 5. Calculate the break-even point if Biscayne's product mix changes so that the standard model is rented 25 percent of the time and the deluxe model is rented for 75 percent. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Required 5 Determine the contribution margin per rental day and contribution margin ratio for each model that Biscayne's offers. (Round var Init Contribution Morain answers to decimolalarne

Answer 1

1)

	Standard	Deluxe
Rental price per day	70	87
Variable cost per day	25.2	34.8
Contribution margin rental per day	44.8	52.2
Contribution margin ratio	64%	60%
	(44.8/70)*100	(52.2/87)*100

2) Biscayne's would prefer to rent Standard model because it has higher contribution margin ratio.

3)  

	Standard	Deluxe
Rental price per day	70	87
Variable cost per day	25.2	34.8
Contribution margin rental per day	44.8	52.2
x Sales mix ratio	50%	50%
	22.4	26.1
Sum of weighted average contribution margin per unit (22.4+26.1)	48.5

Break even point = 33294/48.5 = 686.47 units

4)

	Standard	Deluxe
Rental price per day	70	87
Variable cost per day	25.2	34.8
Contribution margin rental per day	44.8	52.2
x Sales mix ratio	75%	25%
	33.6	13.05
Sum of weighted average contribution margin per unit (33.6+13.05)	46.65

Break even point = 33294/46.65 = 713.70 units

5)

	Standard	Deluxe
Rental price per day	70	87
Variable cost per day	25.2	34.8
Contribution margin rental per day	44.8	52.2
x Sales mix ratio	25%	75%
	11.2	39.15
Sum of weighted average contribution margin per unit (11.2+39.15)	50.35

Break even point = 33294/50.35 = 661.25 units

Note: Break even units have been rounded off upto 2 decimals.