Question

Charleston Carriage Company offers guided​ horse-drawn carriage rides through historic Greenville comma South Carolina. The carriage business is highly regulated by the city. Charleston Carriage Company has the following operating costs during​ April:Fee Paid to city of Charleston 17% of ticket revenueCost of souvenir set of postcards given to each passenger $0.50 per setMonthly cost of leasing and boarding the horses $49,000Carriage Drivers (tour guides) are paid on a per-passenger basis $2.90 per passengerMonthly payroll costs of non-tour guide employees $8,500Marketing, web-site, telephone, and other monthly fixed cosst $8,000In addition to these costs, Charleston Carriage pays a brokerage fee of $1.10 per ticket sold by brokers. On average, 65% of tickets are issued through these brokers; 40% are sold directly by Charleston Carriage.Charleston Carriage has a question about its monthly revenues, costs, and profits in 2017.Charleston Carriage has an opportunity to negotiate with the company that leases the horses and boards them. If Charleston Carriage expects to sell 7,054 tickets per month in 2017, what's the most it could pay to lease and board the horses if it wants to break even each month (ignoring taxes)?

Answer 1

Answer:

since the EBIT without monthly leasing and boarding costs is $60,247.96, then that would be the highest possible amount that the company could pay for leasing and boarding if it wants to break even.

Explanation:

Since the company expects to sell 7,054 tickets per month:

• I will assume 60% are sold by brokers = 7,054 x 60% =  4,232 tickets

*the question stated that brokers sold 65% of the tickets and the company 40%, but that is above 100%

total monthly revenue = 7,054 x $18 = $126,972

municipal fee 17% of revenue = $317,430 x 17% = ($21,585.24‬)

cost of souvenir per passenger $0.50 = 7,054 x $0.50 = ($3,527)

carriage drivers wage = 7,054 x $2.90 = ($20,456.60)

monthly payroll = ($8,500)

monthly fixed costs = ($8,000)

brokerage fees = 4,232 x $1.10 = ($4,655.20)

EBIT without monthly leasing and boarding costs = $60,247.96

since the EBIT without monthly leasing and boarding costs is $60,247.96, then that would be the highest possible amount that the company could pay for leasing and boarding if it wants to break even.