Question

CASE STUDY USING EXCEL SPREADSHEET You work for Theo Walcott Tours Ltd which provide tourists and visitors with ‘experiences’ of Perth and its surrounds. Your manager is currently investigating introducing another product, which are ‘Luxury’ helicopter rides over beautiful bushland. Each trip would be 50km in total. Your manager wants you to use cost-volume-profit analysis in order to help assess the plan’s feasibility. She provides you with the following estimated data: Selling price per trip: $600 (total for 3 customers – trips only run with 3 customers) Costs: Fuel: $50 per trip Walcott ‘goodie bag’ per customer: $40 Helicopter rental per month: $20,000 Insurance per month (unlimited trips): $1,000 Pilot costs: $5,000 per month plus $100 per trip Maintenance costs are difficult to estimate but data from a similar company in a different location shows that these monthly costs were $11,000 when 5,000 kms were flown and $5000 when 1,500 kms were flown. ACCM 4100 Management Accounting 1 Trimester 2, 2020: Individual Excel Assignment REQUIRED: Calculate the following: 1) The Break-even point in trips per month 2) The Break-even point in dollars of revenue per month 3) Assuming a profit after tax requirement from the Helicopter trip business of $120,000 per year and a tax rate of 30%, calculate: a) Trips required per month to obtain target profit b) Revenue required per month to obtain target profit Your manager has requested that the spreadsheet is easy to use for ‘What-if’ analysis – so she would like to be able to change some of the inputs to see the impact on the calculations above – for example, if the Helicopter were able to be rented more cheaply or the selling price was increased.

Answer 1

1.

THEO WALCOTT TOURS LTD.
Cost-Volume-Profit Analysis
HELICOPTER	RENTED
TRIP	50kms
No. of Trips	91
No. of Kilometres travelled	4550
SELLING PRICE PER TRIP	600
Fuel	50
Walcott ‘goodie bag’	40
Rent	20000 per month
Insurance	1000 per month
Pilot Cost	5000
Pilot Cost	100 per trip
Maintenance Costs'
for 5000kms	11000
for 1500km	5000
PARTICULARS	$
Selling Price per Trip	600
Variable Costs
Fuel	50
Walcott ‘goodie bag’	40
Pilot Cost	100
Contribution per Trip	410
Fixed Costs
Rent	20,000
Insurance	1,000
Pilot Cost	5,000
Maintenance Costs'	11,000
TOTAL FIXED COSTS	37,000

BREAKEVEN POINT IS SITUATION WHERE TOTAL COST EQUALS TO THE TOTAL SALE
ALSO, IT CAN BE INTREPRETED AS FIXED COSTS EQUAL TO CONTRIBUTION
FIXED COST	37000
REQUIRED CONTRIBUTION	37000
Contribution per trip	410
Required no. of Trips =(37000/410)	90.2439

If Maintenance costs were assumed as 5000, then the total trip required would be 76, which exceeds 1500kms. Hence maintenance costs are taken as 11000

Therefore, the Breakeven point of Trips Required are 91 (rounded off to higher limit).

2.

Calculation of Breakeven point of Revenue:
Breakeven point of Trips	91
Revenue per trip	$.600
Total Revenue (91*600)	$.54600
Therefore, Breakeven point of Revenue would be $. 54,600

CALCULATIONS FOR BREAK-EVEN VOLUME OF TRIPS
PARTICULARS	For one Trip	For 91 trips
Selling Price	600	54,600
Variable Costs
Fuel	50	4,550
Walcott ‘goodie bag’	40	3,640
Pilot Cost	100	9,100
Contribution	410	37,310
Fixed Costs
Rent	20,000	20,000
Insurance	1,000	1,000
Pilot Cost	5,000	5,000
Maintenance Costs'	11,000	11,000
TOTAL FIXED COSTS	37,000	37,000

The Difference 37310-37000=310 is reflecting as the no. of trips are rounded off to higher value

3.