Question

Braided Rugs​,​Inc., is considering three possible countries for the sole manufacturing site of its newest area​ rug: France, Brazil, and the United States. All area rugs are to be sold to retail outlets in the United States for $280 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

				Variable
	Sales Price	Annual	Variable	Marketing and
	to Retail	Fixed	Manufacturing Cost	Distribution Cost
Country	Outlets	Costs	per Area Rug	per Area Rug
France	$290.00	$7,540,000	$95.00	$79.00
Brazil	290.00	5,220,000	90.00	55.00
Italy	290.00	16,936,000	95.00	79.00

Requirement 1

Compute the breakeven point for Braided Rugs Inc, in each country in (a) units sold and (b) revenues

Requirement 2

If Wool Rugs Inc plans to produce and sell 80,000 rugs in 2014, what is the budgeted operating income for each of the three manufacturing locations? comment on the results

Answer 1

working notes

1. break even point is the point at which the firms total revenue is equals to the total cost

2. it is the point where no profit and no loss

3) BEP in units = fixed cost /contribution margin per rug

4)BEP in revenue = fixed cost /contribution margin ratio

5)contribution margin ratio= contribution per rug/sales price *100

6)net operating profit = sales- variable cost - fixed cost