Homework Answers
Answer:
1)
The formula for break even point is
|
Break even point |
||||
|
Fixed cost |
/ |
Contribution margin per unit |
= |
Break even number of units |
Now first of all we will find the Contribution margin per unit as under
Contribution margin per package
=Revenue – Variable cost
=6,250-5,250
=$1,000 per package
And fixed cost given in the question is $590,000 now lets find out the break even point as under
|
Break even point |
||||
|
Fixed cost |
/ |
Contribution margin per unit |
= |
Break even number of units |
|
5,90,000 |
1000 |
590 |
||
_______________________________________________________________________
2)
Calculation for the revenue needed to earn a target operating income of $92,000
|
Annual Fixed cost (A) |
590000 |
|
Add: operating income (B) |
92000 |
|
Total (C=A+B) |
682000 |
|
Contribution margin Per package (D) (As calculated above) |
1000 |
|
Number of package (E=C/D) |
682 |
|
Revenue needed(682x6250) |
4262500 |
3)
Calculation of the decrease in variable cost per person must be achieved to maintain the breakeven point calculated in A ,If fixed costs increase by $29,500
New Fixed cost
=590,000+$29,500
=$619,500
|
New Fixed cost |
619500 |
|
Break even package tour |
590 |
|
new contribution margin per unit (619500/590) |
1050 |
|
New variable cost (6250-1050) |
5200 |
|
Decrease in variable cost(5250-5200) |
50 |
4)
Contribution margin per package
=Revenue- variable cost
=7,750-5,250
=$2,500
|
Break even point |
||||
|
Fixed cost |
/ |
Contribution margin per unit |
= |
Break even number of units |
|
5,90,000 |
2500 |
236 |
||
Break even point in dollar
=7,750 per package x 236
=$1,829,000.
|
Breakeven point in unit |
236 |
|
|
Break-even point in dollar |
1829000 |
Following factors should the general manager consider before deciding to increase the price of the package tour
- The effect of the price sensitivity on the present client of the company
- Whether company can get enough client to achieve break-even point if there is increase in price
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