Activity: Fred\'s Taxi Fred is an experlenced taxi driver who owns and operates

Question

Activity: Fred's Taxi Fred is an experlenced taxi driver who owns and operates a taxd in a large, busy city. Duning the yoar Fred and his taxi usualy ravel around 100,000 km An analysis of Fred's recent financial records reveals the following Flxed annual costs Licence plate fees Vehicle registration Insurance Total foxed cost Varlable costs per kilometre Fuel Servicing cos Total variable cost per km Average revenue per km$1.00 $15,000 00 $1,000.00 2.000.00 $18,000.00 $0.15 010 $0.25 1. What are Fred's annual proft lkely to be for the coming year 2. What would Fred earn if the state povemment were to increase the licence plate fee to $20,000 per annum, but allow him to charge $1.10 per klometre? 3 Using the original information only How many klometres must Fred drive if he is to break even?

Explanation / Answer

Answer 1

Answer 2

Answer 3

Total Fixed Cost = 18000

Contribution Margin per km = $ 0.75

Breakeven Point (in Km) = Fixed Cost / Contribution Margin per unit = 18,000 / 0.75 = 24,000 km

Revenue @ $1 per KM          1,00,000 Variable Cost: Fuel             15,000 Servicing Cost             10,000 Fixed Cost: License Plate Fees             15,000 Vehicle Registration                1,000 Insurance                2,000 Annual Profit             57,000

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