Sparkle Travel Agency specializes in flights between Toronto and Jamaica. It books passengers on Ottawa Air....

Sparkle Travel Agency specializes in flights between Toronto and Jamaica. It books passengers on Ottawa Air. Sparkle's fixed costs are$ 29,500 per month. Ottawa Air charges passengers $1,600 per round-trip ticket.

Breakeven number of units = ____ / ____

Calculate the number of tickets Sparkle must sell each month to (a) break even and (b) make a target operating income of $19,000 per month in each of the following independent cases. (Round up to the nearest whole number. Forexample, 10.2 should be rounded up to 11.)

1.	Sparkle's variable costs are $42 per ticket. Ottawa Air pays Sparkle 10% commission on ticket price.
2.	Sparkle's variable costs are $35 per ticket. Ottawa Air pays Sparkle 10% commission on ticket price.
3.	Sparkle's variable costs are $35 per ticket. Ottawa Air pays $55 fixed commission per ticket to Sparkle. Comment on the results.
4.	Sparkle's variable costs are $35 per ticket. It receives $55 commission per ticket from Ottawa Air. It charges its customers a delivery fee of $5 per ticket. Comment on the results.

Expert Solution


Ques 1
a)
Variable cost	42
comission	10%


SP(Comission%)	160
VC	42
Contribution margin	118
FC	29500

Breakeven=FC/Contribution magin per unit
Breakeven=	250	tickets

b)
Q=FC+Target profit / contribution margin per unit
Q=	411	TICKEt
(19000+29500)/118
Ques 2
a)
Variable cost	35
comission	10%

SP(Comission%)	160
VC	35
Contribution margin	125
FC	29500

Breakeven=FC/Contribution magin per unit
Breakeven=	236	tickets
(19000+29500)/125
b)
Q=FC+Target profit / contribution margin per unit
Q=	388	TICKEt

Ques 3
a)
Variable cost	35
comission	55

SP(given)	55
VC	35
Contribution margin	20
FC	29500

Breakeven=FC/Contribution magin per unit
Breakeven=	1475	tickets
(19000+29500)/20
b)
Q=FC+Target profit / contribution margin per unit
Q=	2425	TICKEt
Because of the fixed comission sales revenue has come down (from 160 to 55)
hence breakeven increases
Ques 4
a)
Variable cost	35
Delivery	5
comission	55

SP(given+delivery)	60
VC	35
Contribution margin	25
FC	29500

Breakeven=FC/Contribution magin per unit
Breakeven=	1180	tickets

b)
Q=FC+Target profit / contribution margin per unit
Q=	1940	TICKEt
(19000+29500)/25

ekkarill92 answered 2 years ago

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