Question

Charleston Carriage Company offers guided horse-drawn carriage rides through historic Charleston, South Carolina. The carriage business is highly regulated by the city. The fare for all passengers is $19.50. Charleston Carriage has the following monthly operating costs:

Fee paid to the city of Charleston	16% of ticket revenue
Cost of souvenir set of postcards given to each passenger	$0.40 per set
Monthly cost of leasing and boarding the horses	$45,000
Carriage drivers (tour guides) are paid on a per-passenger basis	$3.10 per passenger
Monthly payroll costs of non tour guide employees	$8,000
Marketing, web-site, telephone, and other monthly fixed costs	$7,500

In addition to these costs, Charleston Carriage pays a brokerage fee of $0.90 per ticket sold by brokers. On average, 60% of tickets are issued through these brokers; 40% are sold directly by Charleston Carriage.

Charleston Carriage has several questions about its monthly revenues, costs, and profits in 2018.

REQUIRED [ROUND YOUR ANSWER TO PART A, QUESTION 1 TO THE NEAREST CENT; ROUND ALL OTHER ANSWERS TO THE NEAREST UNIT OR NEAREST DOLLAR.]

Part A (6 tries; 8 points)
1. What is the estimated monthly contribution margin per passenger for Charleston Carriage in 2018?    

2. What are the estimated total monthly fixed costs for Charleston Carriage in 2018?    

Part B (8 tries; 8 points)
3. What is Charleston Carriage's estimated monthly operating income in 2018 if the number of monthly passengers is 8,900?    

4. How many monthly passengers would be required for Charleston Carriage to break even in 2018?    

5. How many monthly passengers would be required for Charleston Carriage to earn $112,000 per month in 2018?    

6. Assuming a tax rate of 35%, what must revenue be in order for Charleston Carriage to earn $112,000 per month in 2018?   

Part C (4 tries; 4 points)
7. Charleston Carriage has an opportunity to negotiate with the company that leases the horses and boards them. If Charleston Carriage expects to sell 5,903 tickets per month in 2018, what's the most it could pay to lease and board the horses if it wants to break even each month (ignoring taxes)?    

Answer 1

1.

Contribution margin per passenger

$2.35

Working:

Fare per pasenger		$19.50
Variable costs:
Fee paid to city of Charleston	$3.12
(16% of the ticket or 16% of 19.50)
Cost of souvenir per passenger	$0.40
Cariage drivers	$3.10
Brokerage fee	$10.53
(@$0.90 on 60% of the ticket sales)
Total Variable cost		$17.15
Contribution margin per passenger		$2.35

2.

Estimated total monthly fixed costs = $15,500

Monthly payroll costs	8000
Marketing,web-site telephone and	7500
other monthly fixed costs
Total monthly fixed costs	15500

3. Monthly operating income =$5,415

Number of monthly passengers	8900
Monthly contribution (@$2.35 per pasenegr)	$20,915
Monthly fixed costs	$15,500
Monthly operating income	$5,415

4. Monthly passenegrs required to break-even = 6,596

Monthly fixed costs                                         (A)	$15,500.00
Contribution per passenger                         (B)	$2.35
Number of passengers to break even   (A / B)	6,596

5. Number of passengers required to earn $112,000 per month = 54,255

Fixed costs per month                                          (A)	15500
Target profit                                                             (B)	112000
Total contribution required        (A+B)           (C)	127500
Contribution per passenger                             (D)	2.35
Number of pasengers required                   (C/D)	54255

6. Number of passengers required 79,918.

Earnings required                                               (A)	112000
Tax rate                                                                  (B)	35%
Earnings before taxes   A/ (1-B)                     (C)	172308
Fixed costs                                                               (D)	15500
Total contribution margin required              (E)	187808
Contribution per passenger                             (F)	2.35
Number of pasengers required                   (E/F)	79918