Suburban Bus Lines operates as a not-for-profit organization providing local tra
ID: 2420835 • Letter: S
Question
Suburban Bus Lines operates as a not-for-profit organization providing local transit service. As a not-for-profit, it refers to an excess of revenues over costs as a "surplus" and an excess of costs over revenues as a "deficit." Suburban charges $1.20 per ride. The variable costs of a ride are $1.60. The fixed costs of Suburban are $212,000 annually. The county government provides Suburban with a flat subsidy of $248,400 annually.
Suburban Bus Lines operates as a not-for-profit organization providing local transit service. As a not-for-profit, it refers to an excess of revenues over costs as a "surplus" and an excess of costs over revenues as a "deficit." Suburban charges $1.20 per ride. The variable costs of a ride are $1.60. The fixed costs of Suburban are $212,000 annually. The county government provides Suburban with a flat subsidy of $248,400 annually.
Explanation / Answer
The Break-even Point is, in general, the point at which the gains equal the losses. A break-even point defines when an investment will generate a positive return. The point where sales or revenues equal expenses. Or also the point where total costs equal total revenues. There is no profit made or loss incurred at the break-even point. This is important for anyone that manages a business, since the break-even point is the lower limit of profit when prices are set and margins are determined.
Break-even Point calculation
Calculation of the BEP can be done using the following formula:
BEP = TFC / (SUP - VCUP)
where:
BEP = break-even point (units of production)
TFC = total fixed costs,
VCUP = variable costs per unit of production,
SUP = selling price per unit of production
BEP = TFC / (SUP - VCUP)
= $212000($1.60-$1.20)
=$212000(-0.40)
=$-84000
Govt Subsidy= $248400-84000
=$164400
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