Question

Spencer Kars provides shuttle service between four hotels near a medical center and an international airport. Spencer Kars 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.

Fare revenues ( 1,500 fares)				$ 34,500
Variable costs
Fuel		$ 5,603
Tolls and parking		3,446
Maintenance		956		10,005
Contribution margin				24,495
Fixed costs
Salaries		13,100
Depreciation		1,500
Insurance		1,517		16,117
Net income				$ 8,378

A. Calculate the break-even point in dollars.

B. Calculate the break-even point in number of fares. (Round answer to 0 decimal places, e.g. 5,275.)

C. Without calculations, determine the contribution margin at the break-even point.

Answer 1

Fare revenues ( 1,500 fares)		34500
Variable costs
Fuel	5603
Tolls and parking	3,446
Maintenance	956	10,005
Contribution margin		24,495
Fixed costs
Salaries	13,100
Depreciation	1,500
Insurance	1,517	16,117
Net income		8,378
Requirement A
CM Ratio = Contribution Margin/ Revenue X100
CM Ratio = 24,495/34,500 X100
=71%
Break even point in dollars = Fixed Cost/ CM Ratio
= 16,117/71%
= 22,700
Requirement B
Contribution per fare = Contribution margin / # of fares
=24,495/1500    = 16.33
Break-even point in number of fares
= Fixed cost / Contribution per fare
= 16,117/16.33
= 987 fares

Requirement C. Contribution margin at the break even point is fixed costs i.e., $16,117