Question

Wildhorse provides shuttle service between four hotels near a medical center and an international airport. Wildhorse uses two 10-passenger vans to offer 12 round trips per day. A recent month’s activity in the form of a cost-volume-profit income statement is shown below.

Sales (1,500 passengers)				$33,000
Variable costs
Fuel		$4,250
Tolls and parking		3,274
Maintenance		726		8,250
Contribution margin				24,750
Fixed costs
Salaries		13,500
Depreciation		2,000
Insurance		1,000		16,500
Net income				$8,250

Calculate the break-even point in dollars.

Break-even point

$

Answer 1

A company's breakeven point is the point at which its sales exactly cover its expenses. This means at the break-even sales, there will be no profit or loss to the company. To compute a company's breakeven point in sales volume, we will follow a three-step policy in which we will first find contribution margin per unit, then break even quantity of sales and the finally break even sales.

So let us complete all the steps one by one:

Computation of contribution margin per Passenger:

Contribution margin per Passenger = Total Contribution Margin/ Total No of Passengers

Particulars		$
Total Contribution Margin	A	24,750
Passengers	B	1,500
Contribution Margin per passenger	C=A/B	16.50

Computation of break even quantity:

Break even quantity = Total Fixed Costs/Contribution margin per Passenger

Particulars		$
Fixed Costs	A	16,500
Contribution Margin per passenger	B	16.50
Break even quantity (in passengers)	C=A/B	1,000

Computation of break even sales amount in dollars

Break-even sales = Break Even Quantity * Selling price per travel

Particulars		$
Break even quantity (in passengers)	A	1,000
Selling Price per travel	B= $33,000/1,500	22
Break even sales amount (in $)	C=A*B	22,000

Therefore, break-even sales amount is $22,000.