Biscayne’s Rent-A-Ride rents two models of automobiles: the standard and the del

Question

Biscayne’s Rent-A-Ride rents two models of automobiles: the standard and the deluxe. Information follows:

Biscayne’s total fixed cost is $18,500 per month.

Required:
1. Determine the contribution margin per rental day and contribution margin ratio for each model that Biscayne’s offers. (Round your "Unit Contribution Margin" answers to 2 decimal places.)



2. Which model would Biscayne’s prefer to rent?

3. Calculate Biscayne’s break-even point if the product mix is 50/50. (Do not round intermediate calculations. Round your final answer to the nearest whole number.)



4. Calculate the break-even point if Biscayne’s product mix changes so that the standard model is rented 75 percent of the time and the deluxe model is rented for only 25 percent. (Do not round intermediate calculations. Round your final answer to the nearest whole number.)



5. Calculate the break-even point if Biscayne’s product mix changes so that the standard model is rented 25 percent of the time and the deluxe model is rented for 75 percent. (Do not round intermediate calculations. Round your final answer to the nearest whole number.)

Standard Deluxe Rental price per day $ 30.00 $ 38.00 Variable cost per day 10.50 15.20

Explanation / Answer

PART 1

Contribution margin per rental day = rental price per day – variable cost per day

Deluxe model = 30-10.50 = 19.50

Standard model= 38-15.20 = 22.80

Contribution margin ratio = Contribution margin per rental day/ rental price per day

Deluxe model = 19.50/30 = 65%

Standard model = 22.80/38 = 60%

PART 2

Biscayne’s would prefer to rent Deluxe model, as its contribution margin is high

PART 3

First we need to calculate weighted average contribution margin per rental day

(50%*(30-10.50))+(50%*(38-15.20)) = 21.15

break-even point = Fixed cost / weighted average contribution margin per rental day

= 18500/21.15 = 875

Deluxe model = 875*50% = 438

Standard model = 875*50% = 437

PART 4

First we need to calculate weighted average contribution margin per rental day

(75%*(30-10.50))+(25%*(38-15.20)) = 20.325

break-even point = Fixed cost / weighted average contribution margin per rental day

= 18500/20.325 = 910

Deluxe model = 910*75% = 683

Standard model = 910*25% = 227

PART 5

First we need to calculate weighted average contribution margin per rental day

(25%*(30-10.50))+(75%*(38-15.20)) = 21.975

break-even point = Fixed cost / weighted average contribution margin per rental day

= 18500/21.975 = 842

Deluxe model = 842*25% =211

Standard model = 842*75% =631

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