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Discount Rugs, Inc., is considering three possible countries for the sole manufacturing site of its newest area rug: Spain, Brazil,and the United States. 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.) .Requirement 1. Compute the breakeven point for Discount Rugs, 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.

Fixed costs

Contribution margin per unit

=

Breakeven point in units

Breakeven point in units

Sales price per unit

=

Breakeven point in revenues

Compute the breakeven point for Discount Rugs, Inc., in each country in (a) units sold and (b) revenues using the formulas you determined above.

Spain Brazil the United States Requirement 2. If Discount Rugs, Inc., plans to produce and sell 65,000 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.

Another way to solve for the operating income or loss is:

Discount Rugs,Compute the budgeted operating income or loss for Inc., in each country if the company produces and sells 65,000 area rugs in 2014. (Use parentheses or a minus sign when entering operating losses.)

Compute the budgeted operating income or loss for Discount Rugs, Inc., in each country if the company produces and sells area rugs in 2014. (Use parentheses or a minus sign when entering operating losses.)

Data Table

Country	Sales Price to Retail Outlets	Annual Fixed Costs	Variable Manufacturing Cost per Area Rug	Variable Marketing and Distribution Cost per Area Rug
Spain	$240.00	$9,600,000	$55.00	$35.00
Brazil	240.00	5,304,000	45.00	39.00
the United States	240.00	18,720,000	50.00	46.00

	Spain
Budgeted operating income

Brazil

the United States

Spain Brazil United States has the lowest breakeven points since it has the highest/lowest fixed costs and the highest/lowest variable cost per unit. Therefore, at any given selling price Spain, Brazil, or United States will always have the highest operating income.

the U.S.'s breakeven point is higher/lower than the budgeted sales in 2014, therefore an operating income operating loss is budgeted.

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