Question

Carson Carriage Company offers guided​ horse-drawn carriage rides through historic Camden, South Carolina. The carriage business is highly regulated by the city. Carson Carriage Company has the following operating costs during​ April:

Data Table

Monthly depreciation expense on carriages and stable. . . . . . . . . . . . . . . . . . . . . . . . . . . .	$2,300
Fee paid to the City of Camden. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	20% of ticket revenue
Cost of souvenir set of postcards given to each passenger. . . . . . . . . . . . . . . . . . . . . . . . . . . . .	$0.70/set of postcards
Brokerage fee paid to independent ticket brokers (60% of tickets are issued through these	$1.20/ticket sold by broker
brokers; 40% are sold directly by the Carson Carriage Company). . . . . . . . . . . . . . . . . . . . .
Monthly cost of leasing and boarding the horses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	$50,000
Carriage drivers (tour guides) are paid on a per passenger basis. . . . . . . . . . . . . . . . . . . . . . . .	$3.70 per passenger
Monthly payroll costs of non-tour guide employees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	$7,750
Marketing, website, telephone, and other monthly fixed costs. . . . . . . . . . . . . . . . . . . . . . . . . . .	$7,150

During April​ (a month during peak​ season), Carson Carriage Company had 13,000 passengers. Sixty percent of passengers were adults ($23 ​fare) while 40​% were children ($15 fare).

Requirements

1.	Prepare the​ company's contribution margin income statement for the month of April. Round all figures to the nearest dollar.
2.

Assume passenger volume increases by 15​% in May. Which figures on the income statement would you expect to change and by what percentage would they​ change? If passenger volume increases by 15​% in​ May, we would expect ▼(all/few/most) ▼ (fixed/mixed/variable) expenses to ▼(decrease by/increase by) 15​%. This is because▼(fixed mixed variable) costs change in direct proportion to changes in volume. As a​ result, the ▼ (contribution margin fixed expenses operating income) would▼(decrease by increase) by 15​%. Which figures would remain the same as in​ April? Assuming that a 15​% increase in volume is still in the same relevant​ range, we would expect ▼ (all few most)▼(fixed mixed variable) costs to remain at their present level.

Answer 1

	Adults	Children
Selling price of ticket	23	15
Number of passenger	7800	5200
Sales revenue (selling price of ticket * Number of passenger)	179400	78000
Fee paid to the City of Camden (sales revenue * 20%)	35880	15600
Cost of souvenir set of postcards (0.70 * Number of passenger)	5460	3640
Brokerage fee paid (Number of passenger * 1.20 * 60%)	5616	3744
Carriage drivers (tour guides) are paid (3.70 * Number of passenger)	28860	19240

Company's contribution margin income statement for the month of April
	Adults	Children	Total
Sales revenue	179400	78000	257400
Less: variable cost
Fee paid to the City of Camden	35880	15600	51480
Cost of souvenir set of postcards	5460	3640	9100
Brokerage fee paid	5616	3744	9360
Carriage drivers (tour guides) are paid	28860	19240	48100
Total variable cost	75816	42224	118040
Contribution margin	103584	35776	139360
Less: fixed cost
Monthly depreciation expense on carriages			2300
Monthly cost of leasing and boarding the horses			50000
Monthly payroll costs of non-tour guide employees			7750
Marketing, website, telephone, and other monthly fixed costs.			7150
Total fixed cost			67200
Net Operating income			72160

Assume passenger volume increases by 15​% in May. Which figures on the income statement would you expect to change and by what percentage would they​change? If passenger volume increases by 15​% in​May, we would expect ▼all ▼variable expenses to ▼increase by 15​%. This is because▼ variable costs change in direct proportion to changes in volume. As a​result, the ▼ contribution margin would▼ increase by 15​%. Which figures would remain the same as in​April? Assuming that a 15​% increase in volume is still in the same relevant​range, we would expect ▼all ▼ fixed costs to remain at their present level.