Sunset Travel Agency specializes in flights between Toronto and Jamaica. It book

Question

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

Calculate the number of tickets

SunsetSunset 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 Sunset10% commission on ticket price.

2.

SunsetSunset's variable costs are $35per ticket.OshawaOshawa Air pays Sunset10% commission on ticket price.

3.

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

4.

SunsetSunset'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: SunsetSunset's variable costs are $ 42 per ticket. OshawaOshawa Air pays SunsetSunset 1010% commission on ticket price. Sunset must sell ()tickets to break even and ()tickets to meet the target operating income.

Case 2: SunsetSunset's variable costs are $ 35$35 per ticket. OshawaOshawa Air pays SunsetSunset 1010% commission on ticket price.

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

Case 3: SunsetSunset's variable costs are $ 35$35 per ticket. OshawaOshawa Air pays $ 55$55 fixed commission per ticket to SunsetSunset. 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 comma 000$12,000.

Case 4: SunsetSunset's variable costs are $ 35$35 per ticket. It receives $ 55$55 commission per ticket from OshawaOshawa Air. It charges its customers a delivery fee of $ 5$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$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 comma 000$12,000.

1.

SunsetSunset's variable costs are $42 per ticket.OshawaOshawa Air pays Sunset10% commission on ticket price.

2.

SunsetSunset's variable costs are $35per ticket.OshawaOshawa Air pays Sunset10% commission on ticket price.

3.

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

4.

SunsetSunset'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.

Explanation / Answer

The delivery fee of $5 will lead to higher contribution margin which both reduced the breakeven point and no of tickets sold to achieve $12000 operating income.

1a) Selling Price = Commission = $1600*10% =$160 Variable cost =$42 Contribution Margin = Selling Price - Variable Cost = $160-$42 = $118 Break even Tickets = Fixed cost/ Contribution per ticket = $29500/$118 =250 tikckets 1b) No of Tickets to be sold = Fixed cost + Target Income/ Contribution per ticket = $29500+$12000/$118 = $41500/$118 = 352 tickets 2a) Selling Price = Commission = $1600*10% =$160 Variable cost =$35 Contribution Margin = Selling Price - Variable Cost = $160-$35 = $125 Break even Tickets = Fixed cost/ Contribution per ticket = $29500/$125 = 236 tikckets 2b) No of Tickets to be sold = Fixed cost + Target Income/ Contribution per ticket = $29500+$12000/$125 = $41500/$125 = 332 tickets 3a) Selling Price = Commission = $55 Variable cost =$35 Contribution Margin = Selling Price - Variable Cost = $55-$35 = $20 Break even Tickets = Fixed cost/ Contribution per ticket = $29500/$20 = 1475 tikckets 3b) No of Tickets to be sold = Fixed cost + Target Income/ Contribution per ticket = $29500+$12000/$20 = $41500/$20 = 2075 tickets The reduction in commission increases the breakeven point and the number of tickets sizably.

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