Carmel rugs is holding a 2-week carpet sale at jean’s club, a local warehouse store. carmelrugs plans to sell carpets for $1,000 each. the company will purchase the carpets from a localdistributor for $400 each, with the privilege of returning any unsold units for a full refund. jean’sclub has offered carmel rugs two payment alternatives for the use of space. option 1: a fixed payment of $17,400 for the sale period 3-1option 2: 20% of the total revenues earned during the sale period sameassume carmel rugs will incur no other cost. calculate the break event point in the units for (a) option 1 and (b) option 2.

Instructions are listed below

Explanation:

Giving the following information:

CarmelRugs plans to sell carpets for $1,000 each. The company will purchase the carpets from a local distributor for $400 each, with the privilege of returning any unsold units for a full refund.

Jean’sClub has offered Carmel Rugs two payment alternatives for the use of space.

Option 1:

Fixed cost= $17,400 for the sale period

Option 2: 20% of the total revenues earned during the sale period.

Break-even point= fixed costs/contribution margin

Option 1:

Break-even point= 17400/(1000-400)= 29 carpets

Option 2:

Break-even point= (400+200)/(1000-400)=1 carpet (no fixed cost)

of the three mortgage options that demarco and tanya have to choose from, the balloon payment mortgage would be their best option, over adjustable payment and fixed payment plans.ultimately, the balloon payment plan would save demarco and tanya overall, in interest, would cost less monthly, and they would only have to make these payments for 8 years, opposing to 30 years for adjustable or fixed payment plans. 

overall, demarco and tanya would save $80,811 if they chose balloon payments over fixed payments, and would save $116,711 if they choose balloon payments over adjustable payments. benefits with choosing fixed payments over adjustable payments is that, in the end, the payments will still be $836.30 a month, while with adjustable payments, the initial monthly payments will be $763.38 to $1082.70 a month, ultimately leading to a more costly purchase. benefits with choosing fixed payments over balloon payments are not present. benefits in choosing adjustable payments over is that it has a lower interest rate, and starts with lower monthly payments initially. benefits in choosing adjustable payments over balloon payments include a lower interest rate, and lower initial monthly payments. benefits in choosing balloon payments over fixed payments include lower interest rates, lower overall price, lower monthly payments, takes less time to pay off, and does not require a downpayment. benefits in choosing balloon payments over adjustable payments include, lower monthly payments (when averaged), takes less time to pay off, and lower overall price.

hence, option c, balloon payments, is the best option for demarco and tanya to make this purchase, for it will save them a minimum of $80811, and a maximum of $116,711.