Question

Bay Area Limos operates transportation services to Bay City airport. The price of service is fixed at a flat rate for each trip and most costs of providing the service are fixed for each trip. Betty Smith, the owner, forecasts income by estimating two factors that fluctuate with the economy: the fuel cost associated with the trip and the number of customers who would take trips. Looking at next year, Betty develops the following estimates of contribution margin (price less variable costs, including fuel) for the estimated number of customers. For simplicity, she assumes that the fuel costs (therefore the contribution margin per ride) and the number of customers are independent.

	Contribution Margin per Ride
Scenario	(Price - Variable cost)	Number of Customers
Excellent	$ 45	5,500
Fair	35	2,800
Poor	20	2,200

In addition to the costs of a ride, Betty estimates that other service costs are $42,000 plus $6 for each customer (ride) in excess of 2,800 rides. Annual administrative and marketing costs are estimated to be $20,000 plus 10 percent of the contribution margin.

Required:

Compute the total contribution, costs and operating profit for each of the scenario and each group of customer. (Input all amounts as positive values except losses which should be indicated with a minus sign. Omit the "$" sign in your response.)

	Contribution Margin		Number of Customers	Total Contribution Margin		Service Costs		Marketing & Admin.		Operating Profit(Loss)
Poor	$	20	2,200	$		$		$		$
Fair	$	35	2,200	$		$		$		$
Excellent	$	45	2,200	$		$		$		$
Poor	$	20	2,800	$		$		$		$
Fair	$	35	2,800	$		$		$		$
Excellent	$	45	2,800	$		$		$		$
Poor	$	20	5,500	$		$		$		$
Fair	$	35	5,500	$		$		$		$
Excellent	$	45	5,500	$		$		$		$

Answer 1

	Contribution Margin	Number of customers	Total Contribution margin	Service costs	Marketing and Admin.	Operating profit (loss)
	(a)	(b)	[(c) = (a) X (b)]	(d)	(e)	[(c) - (d) - (e)]
Poor	$              20	2,200	$            44,000	$ 42,000	$ 24,400	$         -22,400
Fair	$              35	2,200	$            77,000	$ 42,000	$ 27,700	$             7,300
Excellent	$              45	2,200	$            99,000	$ 42,000	$ 29,900	$           27,100
Poor	$              20	2,800	$            56,000	$ 42,000	$ 25,600	$         -11,600
Fair	$              35	2,800	$            98,000	$ 42,000	$ 29,800	$           26,200
Excellent	$              45	2,800	$        1,26,000	$ 42,000	$ 32,600	$           51,400
Poor	$              20	5,500	$        1,10,000	$ 58,200	$ 31,000	$           20,800
Fair	$              35	5,500	$        1,92,500	$ 58,200	$ 39,250	$           95,050
Excellent	$              45	5,500	$        2,47,500	$ 58,200	$ 44,750	$       1,44,550
Workings:
	Number of customers	units In excess of 2800 units	Service costs	$ 6 for excess units	Total Service cost
	(i)	(ii)	(iii)	(iv) = (ii) X $6	(iii) + (iv)
Poor	2,200	-	$            42,000	$           -	$ 42,000
Fair	2,200	-	$            42,000	$           -	$ 42,000
Excellent	2,200	-	$            42,000	$           -	$ 42,000
Poor	2,800	-	$            42,000	$           -	$ 42,000
Fair	2,800	-	$            42,000	$           -	$ 42,000
Excellent	2,800	-	$            42,000	$           -	$ 42,000
Poor	5,500	2,700	$            42,000	$ 16,200	$ 58,200
Fair	5,500	2,700	$            42,000	$ 16,200	$ 58,200
Excellent	5,500	2,700	$            42,000	$ 16,200	$ 58,200
	Total Contribution margin	10 % of Contribution margin	Marketing and Admin.	Total Marketing and Admin.
	(i)	(ii) = 10% X (i)	(iii)	(ii) + (iii)
Poor	$     44,000	$    4,400	$            20,000	$ 24,400
Fair	$     77,000	$    7,700	$            20,000	$ 27,700
Excellent	$     99,000	$    9,900	$            20,000	$ 29,900
Poor	$     56,000	$    5,600	$            20,000	$ 25,600
Fair	$     98,000	$    9,800	$            20,000	$ 29,800
Excellent	$ 1,26,000	$ 12,600	$            20,000	$ 32,600
Poor	$ 1,10,000	$ 11,000	$            20,000	$ 31,000
Fair	$ 1,92,500	$ 19,250	$            20,000	$ 39,250
Excellent	$ 2,47,500	$ 24,750	$            20,000	$ 44,750