Question

A tour company is planning a bus trip to a local museum. The company will lease a bus from a local bus owner for $400 and estimates that it will spend $15.00 per person for admission and lunch.
1. Which of the following volume/price alternatives will allow the firm to avoid losing money on the trip?
A. 20 customers at $30.00 each.
B. 30 customers at $27.50 each.
C. 40 customers at $25.00 each.
D. 50 customers at $22.50 each
E. 60 customers at $20.00 each.

Answer 1

Answer:

C. 40 customers at $25.00 each

Explanation:

To avoid losing money on the Trip the total contribution from the trip should be equal to the fixed cost of $400 for car rent

contribution/person = price per trip - admission and lunch cost

Break even number of person = Fixed cost/cont per person

     contribution/person           minimum no of person to cover Fixed cost

A         15                                           400/15=  26.7          

B         12.5                                       400/12.5  =32

C           10                                       400/ 10    =40

D           7.5                                    400/ 7.5   = 53.

E           5                                            400/ 5  = 80

From the table above it is obvious that at a price of $25 and having  40 persons the fixed cost would be covered and no loss would be made.

C. 40 customers at $25.00 each