Question

Comfy Carpets, Inc., is considering three possible countries for the sole manufacturing site of its newest area rug: Italy, Singapore, and Spain. All area rugs are to be sold to retail outlets in the United States for $240 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 : (Click the icon to view the cost data.) Read the requirements. Requirement 1. Compute the breakeven point for Comfy Carpets, 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 Comfy Carpets, Inc., in each country in (a) units sold and (b) revenues using the formulas you determined above. Italy Singapore Spain (a) Breakeven point in units (b) Breakeven point in revenues Requirement 2. If Comfy Carpets, 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. = Operating income (loss) Choose from any list or enter any number in the input fields and then continue to the next question.

Answer 1

Req. 1

Break-Even point in units Fixed costs (Sale price - Variable cost per unit) Italy $9,600,000 [(S240 - ($55 + $35)] 64,000 units Break-Even point in dollars BEP units x Selling price 64,000 units < $240 = $15,360,000

Break-Even point in units Fixed costs (Sale price - Variable cost per unit) Singapore $5,304,000 [(S240 - ($45 + $3991 34.000 units Break-Even point in dollars = BEP units x Selling price 34.000 units x $240 = $8,160,000

Break-Even point in units Fixed costs (Sale price - Variable cost per unit) Spain $18,720,000 [(S240 - ($50+ $46)] 130.000 units Break-Even point in dollars = BEP units x Selling price 130,000 units $240 = $31,200,000

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Req. 2

Budgeted Operating Income
Italy:
Total Sale (70,000 × $240)	$16,800,000
Less: Variable cost (70,000 × $90)	($6,300,000)
Less: Fixed cost	($9,600,000)
Operating Income	$900,000
Singapore:
Total Sale (70,000 × $240)	$16,800,000
Less: Variable cost (70,000 × $84)	($5,880,000)
Less: Fixed cost	($5,304,000)
Operating Income	$5,616,000
Spain:
Total Sale (70,000 × $240)	$16,800,000
Less: Variable cost (70,000 × $96)	($6,720,000)
Less: Fixed cost	($18,720,000)
Operating Income	($8,640,000)