Calculate the number of tickets Sunrise must sell each month to (a) break even a
ID: 2339381 • Letter: C
Question
Calculate the number of tickets Sunrise must sell each month to (a) break even and (b) make a target operating income of $13,000 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. Sunrise's variable costs are $34 per ticket. Bolton Air pays Sunrise 10% 2. Sunrise's variable costs are $30 per ticket. Bolton Air pays Sunrise 10% 3. Sunrise's variable costs are $30 per ticket. Bolton Air pays $46 fixed 4. Sunrise's variable costs are $30 per ticket. It receives $46 commission per commission on ticket price. commission on ticket price. commission per ticket to Sunrise. Comment on the results. ticket from Bolton Air. It charges its customers a delivery fee of $8 per ticket Comment on the results.Explanation / Answer
Answer to Case 1:
Selling Price= 10% of Ticket Price
Selling Price= 10% of $1,300
Selling Price= $130
Variable Cost = $34
Contribution Margin per unit = Selling Price per unit – Variable Cost per unit
Contribution Margin per unit = $130 - $34 = $96
Break Even Point (in Units) = Fixed Costs / Contribution Margin per unit
Break Even Point (in Units) = 36,000 / 96
Break Even Point (in Units) = 375 units
Quantity of units required to be sold = (Fixed Income + Target Operating Income) / Contribution Margin per unit
Quantity of units required to be sold = (36,000 + 18,000) / 96
Quantity of units required to be sold = 54,000 / 96
Quantity of units required to be sold = 562.5 or 563 units
Answer to Case 2:
Selling Price= 10% of Ticket Price
Selling Price= 10% of $1,300
Selling Price= $130
Variable Cost = $30
Contribution Margin per unit = Selling Price per unit – Variable Cost per unit
Contribution Margin per unit = $130 - $30 = $100
Break Even Point (in Units) = Fixed Costs / Contribution Margin per unit
Break Even Point (in Units) = 36,000 / 100
Break Even Point (in Units) = 360 units
Quantity of units required to be sold = (Fixed Income + Target Operating Income) / Contribution Margin per unit
Quantity of units required to be sold = (36,000 + 18,000) / 100
Quantity of units required to be sold = 54,000 / 100
Quantity of units required to be sold = 540 units
Answer to Case 3:
Selling Price= $46
Variable Cost = $30
Contribution Margin per unit = Selling Price per unit – Variable Cost per unit
Contribution Margin per unit = $46 - $30 = $16
Break Even Point (in Units) = Fixed Costs / Contribution Margin per unit
Break Even Point (in Units) = 36,000 / 16
Break Even Point (in Units) = 2,250 units
Quantity of units required to be sold = (Fixed Income + Target Operating Income) / Contribution Margin per unit
Quantity of units required to be sold = (36,000 + 18,000) / 16
Quantity of units required to be sold = 54,000 / 16
Quantity of units required to be sold = 3,375 units
Answer to Case 4:
Selling Price= $46 + $8
Selling Price= $54
Variable Cost = $30
Contribution Margin per unit = Selling Price per unit – Variable Cost per unit
Contribution Margin per unit = $54 - $30 = $24
Break Even Point (in Units) = Fixed Costs / Contribution Margin per unit
Break Even Point (in Units) = 36,000 / 24
Break Even Point (in Units) = 1,500 units
Quantity of units required to be sold = (Fixed Income + Target Operating Income) / Contribution Margin per unit
Quantity of units required to be sold = (36,000 + 18,000) / 24
Quantity of units required to be sold = 54,000 / 24
Quantity of units required to be sold = 2,250 units
The increased selling price by $8 increases Contribution Margin per unit, which reduces the Break Even units and units required to attain the Net Profit of $18,000
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