Question

A county provides a county-wide van service for senior citizens. The county receives a $100,000 grant each year from the state government in support of the van service. The county expects to spend $2,500 each year for operating the service. Insurance will cost the county $1,750 per year for each of the two vans.

The county employs a supervisor to run the van service. The supervisor’s salary is $56,000 per year. They also need one part-time coordinator for every 500 rides they served to organize the routing of the vans and provide service to the senior community. Each coordinator works an average of 10 hours per week for 50 weeks in the year and is paid $7.50 per hour. Supervisors receive benefits worth an additional 20% of their annual salaries. Coordinators do not receive benefits.

Salary and Wage Schedule

Supervisor $56,000 per year

Coordinator $7.50 per hour

All drivers are volunteers. The costs associated with carrying each passenger are $0.25 per mile. The average ride for each passenger is 10 miles. Seniors are asked to pay $3.50 for each ride but only 90% of the riders are able to afford and will pay the fares.

a) Prepare an accrual-based operating budget for the upcoming year, assuming the county provides 5,000 rides during the year. Since there have been fluctuations in ridership in recent years, the county would also like to see what would happen if there is a 10% increase or decrease in the number of rides they provide. Your budget must be properly formatted. The following template will be helpful but feel free to make changes if necessary.

Question a - Flexible Budget	Base case (100%)	Decrease in volume (90%)	Increase in volume (110%)
Number of rides
Revenue
Grant
Fares
Total Revenue
Expenses
Supervisor Salary
Coordinator's Salaries
Benefits
Total Salaries and benefits
Fixed Insurance
Copying and supplies
Mileage Expenses
Total Expenses
Surplus/(Deficit)

1. What are the fixed costs and what are the variable costs in this case?

2. What is the contribution margin per ride from each additional rider assuming the county provides 5,000 rides during the year?

Answer 1

Sol: Operating Budget for the county wide van service:

Particulars	100%	90%	110%
Number of rides	5000	4500	5500
Revenue :	Amount($)	Amount($)	Amount($)
Grant	100,000	100,000	100,000
Fares	15,750	14,175	17,325
Total Revenue (A)	115,750	114,175	117,325
Fixed Cost:
Operating Expenses	2,500	2,500	2,500
Insurance	3,500	3,500	3,500
Supervisor Salary & benefits	67,200	67,200	67,200
Total Fixed Cost (B)	73,200	73,200	73,200
Variable Cost :
Co-ordinator salary	37,500	33,750	41,250
Mileage Expense	12,500	11,250	13,750
Total Variable Cost (C)	50,000	45,000	55,000
Total Cost (B+C)	123,200	118,200	128,200
Deficit	(7,450)	(4,025)	(10,875)

Contribution per ride = ($115,750 - $50,000)/5000 = $13.15

Calculation:

Salary for 1 Co-ordinator = 10×50×7.50 =$3,750

For 5000 rides we need 5000/500 = 10 co-ordinators.

For 4500 rides we need 4500/500= 9 co-ordinators.

For 5500 rides we need 5500/500=11 co-ordinators.

Co-ordinator salary

$3,750×10=$37,500

$3,750×9=$33,750

$3,750×11=$41,250

Mileage expense

$0.25×10×5000=$12,500

$0.25×10×4500=$11,250

$0.25×10×5500=$13,750