Spencer Kars provides shuttle service between four hotels near a medical center

Question

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.

$ 8,378

A. Calculate the break-even point in dollars.

B. Calculate the break-even point in number of fares. (Round answer to 0 decimal places, e.g. 5,275.)

C. Without calculations, determine the contribution margin at the break-even point.

Fare revenues ( 1,500 fares) $ 34,500 Variable costs     Fuel $ 5,603     Tolls and parking 3,446     Maintenance 956 10,005 Contribution margin 24,495 Fixed costs     Salaries 13,100     Depreciation 1,500     Insurance 1,517 16,117 Net income

$ 8,378

Explanation / Answer

Requirement C. Contribution margin at the break even point is fixed costs i.e., $16,117

Fare revenues ( 1,500 fares) 34500 Variable costs     Fuel 5603     Tolls and parking 3,446     Maintenance 956 10,005 Contribution margin 24,495 Fixed costs     Salaries 13,100     Depreciation 1,500     Insurance 1,517 16,117 Net income 8,378 Requirement A CM Ratio = Contribution Margin/ Revenue X100 CM Ratio = 24,495/34,500 X100                  =71% Break even point in dollars = Fixed Cost/ CM Ratio        = 16,117/71%        = 22,700 Requirement B Contribution per fare = Contribution margin / # of fares         =24,495/1500    = 16.33 Break-even point in number of fares              = Fixed cost / Contribution per fare              = 16,117/16.33             = 987 fares

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