Luxury Tours provides tours of Las Vegas Each person buys a $175 ticket Variable

Question

Luxury Tours provides tours of Las Vegas Each person buys a $175 ticket Variable costs are $70 Annual fixed costs amount to $750 000. How many tours must Luxury Tours provide in a month to break even? Calculate the sales revenue required to earn a target net profit of $40.000 per month. Calculate the contribution margin ratio. Variable costs are expected to rise to $80 next year Fixed costs will increase to $800.000 Calculate the new monthly break-even point in units, assuming the same selling price.

Explanation / Answer

Solution.

Break even tours = 750,000.00 / 105 = 7,143

2. Calculate sales revanue for target profit.

Target Income Sales in Units = Fixed Costs + Target Income / Contribution Margin per Unit

= 750,000 + 40,000 / 105

= 7,524

3. Contribution margin ratio.

Formula = Contribution / revanue

= 105 / 175 = 60%

4. New break even point

  Break even tours = 800,000.00 / 95 = 8,421.

Particulars Amount Sales              175.00 Variable cost                70.00 Contribution margin              105.00 Annual fixed cost     750,000.00

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