Question

Sunset Travel Agency specializes in flights between Toronto and Jamaica. It books passengers on OshawaOshawa Air. Sunset's fixed costs are $29,500 per month. OshawaOshawa Air charges passengers $1,600 per round-trip ticket.

Read the requirement.

Calculate the number of tickets Sunset must sell each month to

(a) break even and
(b) make a target operating income of $12,000 per month in each of the following independent cases. (Round up to the nearest whole number. For example, 10.2 should be rounded up to 11.)
1. SunsetSunset's variable costs are $42 per ticket.OshawaOshawa Air pays Sunset 10% commission on ticket price.

2. Sunset's variable costs are $35 per ticket. OshawaOshawa Air pays Sunset 10% commission on ticket price.

3. Sunset's variable costs are $35 per ticket. OshawaOshawa Air pays $55 fixed commission per ticket to Sunset. Comment on the results.

4. Sunset's variable costs are $35per ticket. It receives $55 commission per ticket from OshawaOshawa Air. It charges its customers a delivery fee of $5 per ticket. Comment on the results.

Begin by selecting the formula to calculate the breakeven points.

Breakeven number of units = Fixed costs / Contribution margin per unit
Next, select the formula to calculate the number of tickets needed to meet the target operating income.

Quantity of units required to be sold = ( Fixed costs + Target operating income ) / Contribution margin per unit
Now complete the requirement for each of the cases.

Begin with case 1.
Case 1: Sunset's variable costs are $ 42 per ticket. OshawaOshawa Air pays Sunset 10% commission on ticket price.

Sunset must sell ( _____ ) tickets to break even and ( _____ ) tickets to meet the target operating income.

Case 2: Sunset's variable costs are $ 35 per ticket. OshawaOshawa Air pays SunsetSunset 10% commission on ticket price.

Sunset must sell( _____ ) tickets to break even and( _____ ) tickets to meet the target operating income.

Case 3: Sunset's variable costs are $ 35 per ticket. OshawaOshawa Air pays $ 55 fixed commission per ticket to Sunset. Comment on the results.

Sunset must sell ( _____ ) tickets to break even and _____ (tickets to meet the target operating income. When comparing Case 3 to Case 2, the commission sizably _____ decreases increases the breakeven point and the number of tickets required to yield a target operating income of$12,000.

Case 4: Sunset's variable costs are $ 35 per ticket. It receives $ 55 commission per ticket from OshawaOshawa Air. It charges its customers a delivery fee of $ 5 per ticket. Comment on the results.

Sunset must sell ( _____ ) tickets to break even and ( _____ )tickets to meet the target operating income. When comparing Case 4 to Case 3, the $ 5 delivery fee results in a _____ (higher/lower) contribution margin which _____ (decreases/increases) both the breakeven point and the number of tickets sold to attain operating income of $12,000.

Answer 1

Answer:

Explanation:

Break even point=fixed cost/ contribution margin per unit

Units to be sold to get target operating income=(fixed costs+ target operating income)/contribution margin per unit

1. Revenue=10%×1600=$160 per ticket

Contribution per ticket=$100-$42=$58 per ticket.

Fixed cost=$29,500

Break even units:$29,500/$58=508.6 tickets

Units to be sold to get target operating income:(29500+$12000)/$58=715.5 tickets

2. Revenue=10%×1600=$160 per ticket

Contribution per ticket=$100-$35=$65 per ticket.

Fixed cost=$29,500

Break even units:$29,500/$65=453.8 tickets

Units to be sold to get target operatig income:(29500+$12000)/$65=638 tickets

3.

Revenue=$50 per ticket

Contribution per ticket=$50-$35=$15 per ticket.

Fixed cost=$29,500

Break even units:$29,500/$15=1966 tickets

Units to be sold to get target operating income:(29,500+$12,000)/$15=2766 tickets

4.

Revenue:$55(fixed comission fee)+$5(delivery fee)=$60 per ticket

Contribution per ticket=$60-$35=$25 per ticket.

Fixed cost=$29,500

Break even units:$29,500/$25=1180 tickets

Units to be sold to get target operating income:(29,500+$12,000)/$25=1,660 tickets