Question

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?

Answer 1

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-
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