Samuel Linkletter is an importer of clay gardening pots. He has an agreement with a local gardening
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Question:
Samuel Linkletter is an importer of clay gardening pots. He has an agreement with a local gardening store, West City Gardening, to set up a display to sell his product. The average selling price for the pots is $20 and on average, they cost Samuel $12 each. Samuel expects to sell 400 pots each period. The owner of West City Gardening has proposed two options:
1. A fixed payment of $2,000 per month.
2. A fixed payment of $800 and, 10% of sales revenues earned during the term of the agreement
Required:
- Calculate the degree of operating leverage for both options.
- Calculate the number of units that must sold to result in the same operating income for both options.
- Determine at the number of units that are optimal for Option 1 and the number of units that are optimal for Option 2.
Related Book For
Managerial Accounting Tools for business decision making
ISBN: 978-1118096895
6th Edition
Authors: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso
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