E22-8. Compute break-even point. (LO 3, 4) Spencer Kars provides shuttle service
ID: 2535267 • Letter: E
Question
E22-8.
Compute break-even point.
(LO 3, 4)
Spencer Kars provides shuttle service between four hotels near a medical center and an international airport. Spencer Kars uses two 10-passenger vans to offer 12 round trips per day. A recent month's activity in the form of a cost-volume-profit income statement is shown below.
Instructions
(a)
Calculate the break-even point in (1) dollars and (2) number of fares.
(b)
Without calculations, determine the contribution margin at the break-even point.
Fare revenues (1,500 fares) $36,000 Variable costs Fuel $?5,040 Tolls and parking 3,100 Maintenance 860 9,000 Contribution margin 27,000 Fixed costs Salaries 15,700 Depreciation 1,300 Insurance 1,000 18,000 Net income $?9,000Explanation / Answer
(a) Computation of break-even point in (1) dollars and (2) number of fares
Contribution-Margin Ration = 27,000 / 36,000 = 0.75 = 75%
Break-even point ( in dollar) = Fixed Cost / Contibution-Margin = 18,000 / 0.75 = $24,000
Contibution per fare = 27,000 / 1500 = 18
Break-even point ( number of fares) = Fixed Cost / (Contibution per fare) = 18,000 / 18 = 1000 fares
(b) Contribution margin at the break-even point without computation
The contribution margin at breakeven point = Fixed cost = 18,000
(b) Contribution margin at the break-even point (with computation)
Fare Revenue(1000 fares) = (36000/1500) x 1000 = $24,000
Less: Variable Cost (for 1000 fares) = (9000 / 1500) x 1000 = 6,000
Contibution Margin at break-even point = 24,000 - 6,000 = $18,000
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