Question

Nice Trips, Inc generates average revenue of $5,000 per person on its five-day package tours. Fixed costs $520,000

The variable costs per person:

Airfare	$1,400
Hotel	1,100
Meals	300
Ground transportation	100
Tickets for parks, concerts, etc.	800
Total	$3,700

Calculate the number of package tours that must be sold to break even

Calculate the revenue needed to earn a target operating income of $91,000

If fixed costs increase by $32,000 what decrease in variable cost per person must be achieved to maintain the breakeven point calculated in #1

Answer 1

1)	number of package tours to break even
	fixed cost/contribution margin
	520,000/(5,000-3,700)
	400	answer
2)	Revenue needed to earn target income
	contribution margin ratio =1,300/5000
			26%
	Revenue needed = (fixed cost+target income)/contribution margin ratio
			(520,000+91000)/26%
			2350000	answer
3)
	(520,000+32000)/x = 400
	(520,000+32000)/400=x
	x (contribution margin) =			1380
	need to reduce variable cost by $80             (1,380-1300)