Answer:
a. 450 tours per month
b. $850 per month
c. CM Ratio = 0.7
d.
1. Increase
2. Decrease
3. No Effect
Explanation:
<u>The questions are:</u>
<u>a. Compute the average number of tours the company must conduct per month to break even</u>
<u>b. Compute the average sales revenue needed per month to produce a target average profit of $53,200</u>
<u>c. Calculate the contribution margin ratio. (Round your answer to 2 decimal places.)</u>
<u>d. Determine whether the actions that follow will increase, decrease, or not affect the company's break-even point. </u>
<em>1. A decrease in tour prices.</em>
<em>2. The termination of a salaried clerk (no replacement is planned).</em>
<em>3. A decrease in the number of tours sold.</em>
<u />
<u />
<u>Solution:</u>
a.
Selling Price = 190
VC = 57
Unit Contribution Margin = $133
Fixed Cost = 718,200 yearly, so monthly is:
718,200/12 = 59,850
Break even occurs when by selling tours they will cover monthly fixed cost of 59,850 [each tour will get 133], thus:
59,850/133 = <u>450 tours per month</u>
<u></u>
b.
718,200 FC yearly, means, monthly:
718,200/12 = $59,850
Profit needed 53,200, so we would need to cover:
53200+59850 = $113,050
Each tour gives Unit CM to be $133, so we would need revenue of:
Rev = 113,050/133 = <u>$850</u>
<u></u>
c.
Contribution margin ratio is the quotient of difference in sales and var expenses to sales.
So,
CM Ratio = (Sales - Var Exp) / Sales
CM Ratio = (190 - 57) / 190 = 0.7
d.
1.
If the tour prices, decrease, there will be less revenue coming in so the break even point would go higher.
So, break even point will increase
2.
If a salaried clerk is terminated, it will decrease the salary costs of the company. This is decrease the fixed costs of the company (annual wages and salaries), thus it will be easier to cover the new, lower, fixed costs. Thus, the break even point will decrease
3.
A decrease in number of tours sold would proportionally change the variables and other costs and revenues associated. If you look at the calculation above, you will see that "number of tours" won't affect the Break Even Point. Thus, this action will create "no effect".
