John is thinking about getting into the tourism business in Oahu. He will take v
ID: 2358383 • Letter: J
Question
John is thinking about getting into the tourism business in Oahu. He will take visitors on a whole-day trip to the main tourist spots on the island in a new van he is planning to buy. He would like to know how many tourists he has to move daily to have a before-taxes pro? t of $1000 per month so he can save that money. He will work 25 days per month.His costs for the new business would be as follows:
Variable costs per day trip
Gasoline: $ 30
Maintenance: $ 5 (oil, tune-ups, wheels, repairs, etc.)
Fixed costs
Leasing and insurance: $ 1000 per month
Personal expenses: $1000 (the minimum amount he needs for living expenses) per month
He is planning to charge $ 45 per visitor for a day trip.
Using the break-even formula, John will need how many daily travelers in order to achieve a pro?t of $1000 per month?
Explanation / Answer
As mentioned, Van capacity is reqd. However in absence of that, below is the working"- Total Var cost per day trip = $30 + $5 = $35 Rer visitor charge per day is $45 So COnt per day = $45-$35 = $10 So Monthly cont = 25 days *$10 = $250 BEP = Fixed costs/Monthly cont = ($1000+$1000)/250 = 8 SO 8 visitor are reqd for Breakeven........................Ans (1) For a profit of $1000, We have Profit 1000 = Total Cont - Fixed cost = No of visitor* Cont per visitor - 2000 ie No of visitor* Cont per visitor = 1000+2000 = 3000 Ie No of visitor = 3000/10= 300 ....................Ans (2)
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