Bristol Car Service offers airport service in a mid-size city. Bristol charges $60 per trip to or from the airport. The variable cost for a trip totals $22, for fuel, driver, and so on. The monthly fixed cost for Bristol Rainbow Tours is $6,460.
Required:
a. How many trips must Bristol sell every month to break even?
b. Bristol's owner believes that 199 trips is a reasonable forecast of the average monthly demand. What is the margin of safety in terms of the number of airport trips?
| A. | ||
| Contribution per trip (a) | = Sales price-Variable cost | |
| =60-22 | ||
| 38 | ||
| Total Fixed Cost(b) | 6460 | |
| Breakeven point | =Fixed Cost/Contribution per trip | |
| =6460/38 | ||
| 170 | ||
| So, the Bistrol must make 170 trips in a month to break even. | ||
| B. | ||
| Current Sales level | 199 | |
| Margin of safety in % | (Current Sales- Break even sales)/Current Sales | |
| =(199-170)/199*10 | ||
| 15% | ||
| Margin of safety in terms of Trips= | Current Sales - Break Even Sales | |
| =199-170 | ||
| 29 Trips | ||
| Note- | ||
| Best effort have been made to answer the question correctly, in case of any discrepencies kindly comment and i will try to resolve it as soon as possible. | ||
| Please provide positive feedback. | ||
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