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Safari File Edit View History BookmarksDevelop Window Help 765.25 MB * -) 32% D sun 10:10 PM Q ezto.mheducation.com Chapter 13 Bassnectar NYE 2017 Hype Mix: Side 1 by Frequazoid Exercise 13-46 Sensitivity Analysis (LO 13-9) Classic Limo, Inc., provides limousine service to Tri-Cities airport. The price of the service is fixed at a flat rate for each trip and most costs of the providing the service are stable for each trip. Marc Pence, the owner, budgets income by estimating two factors that fluctuate with the economy: the fuel cost associated with each trip and the number of customers who will take trips. Looking at next year, Marc develops the following estimates of contribution margin (price less variable cost of the trip, including fuel) and for the estimated number of customers. Although Marc understands that it is not strictly true, he assumes that the cost of fuel and the number of customers are independent. Contribution Margin per Ride Number of Scenario (Price-Variable cost)Customers 10,500 6,000 4,500 25 In addition to the costs of a ride, Marc estimates that other service costs are $50,000 plus S5 for each customer (ride) in excess of 6,000 rides. Annual administrative and marketing costs are estimated to be $25,000 plus 10 percent of the contribution margin. Prepare an analysis of the possible operating income for Classic Limo, Inc., siilar to that in Exhibit 13.15. What is the range of possible operating incomes? Total Contribution Marketing & Operating MarginCu stomers Contribution Service Admin Profit (Loss) 15 25 40 15 Fair Excellent Poor Fair Excellent Poor Fair Excellent 4,500 4.500 4,500 6,000 6,000 6,000 10,500 10,500 10,500 40 15 25 40 ReferenceseBook & Resources Difficulty: 1 Easy

Explanation / Answer

Contribution Margin Number of Customers Total Contribution Margin Service costs Marketing & Admin. Operating Profit (loss) Poor 15 4500 67500 50000 31750 -14250 (25000+67500*10%) Fair 25 4500 112500 50000 36250 26250 Excellent 40 4500 180000 50000 43000 87000 Poor 15 6000 90000 50000 34000 6000 Fair 25 6000 150000 50000 40000 60000 Excellent 40 6000 240000 50000 49000 141000 Poor 15 10500 157500 75000 40750 41750 (50000+5000*5) Fair 25 10500 262500 75000 51250 136250 (50000+5000*5) Excellent 40 10500 420000 75000 67000 278000 (50000+5000*5)

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