Question

High Flying takes tourists on helicopter tours of Hawaii. Each tourist buys a $220 ticket; the variable costs average $99 per person. High Flying has annual fixed costs of $653,400.

Required:

1. Compute the average number of tours the company must conduct per month to break even.
2. Compute the average sales revenue needed per month to produce a target average profit of $54,450.
3. Calculate the contribution margin ratio. (Round your answer to 2 decimal places.)
4. Determine whether the actions that follow will increase, decrease, or not affect the company's break-even point.

A. Break-even tours =

B. Tours to earn $54,450 =

C. Contribution Margin =

D-1. A decrease in tour prices =

D-2. The termination of a salaried clerk (no replacement is planned =

D-3. A decrease in number of tours sold =

Answer 1

Computation of sales revenue for profit of $54450

a)

Break even in number of tourist= Fixed cost/(Selling price per ticket- variable cost per ticket)

b)

Profit

54450

=

653400/(220-99)

Add: Fixed Cost

653400

=

5400

Number of tourist

Contribution margin

707850

(707850/121=5850 tickets)

Variable cost (5850*99)

579150

Revenue (5850*220)

1287000

c)

Contribution ratio =

(Selling price per unit-Variable cost per unit)/Selling price per unit*100

=

(220-99)/220*100

d)

A decrease in tourist price would require more number of tickets to sell

=

55

%

to achieve break even therefore it will increase breakeven in number

of units.

Contribution margin per unit =

Selling price per unit-Variable cost per unit

=

220-99

e)

Decrease in number of units as fixed cost will be reduced by the amount

=

121

of clerk' salary.

f)

Less number of tickets would mean lesser the contribution it would increase

the breakeven