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	13% of ticket revenue
Cost of souvenir set of postcards given to each passenger	$0.50 per set
Monthly cost of leasing and boarding the horses	$49,000
Carriage drivers (tour guides) are paid on a per-passenger basis	$2.90 per passenger
Monthly payroll costs of non tour guide employees	$8,500
Marketing, web-site, telephone, and other monthly fixed costs	$8,000

In addition to these costs, Charleston Carriage pays a brokerage fee of $1.10 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.

5. How many monthly passengers would be required for Charleston Carriage to earn $91,000 per month in 2018?    

6. Assuming a tax rate of 34%, what must revenue be in order for Charleston Carriage to earn $91,000 per month in 2018?   

Part C
7. Charleston Carriage has an opportunity to negotiate with the company that leases the horses and boards them. If Charleston Carriage expects to sell 6,078 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

Rq 5:
Variable cost per ticket:
Fees paid to city (19.50*13%)					2.535
Cost of Souvnir set					0.5
Carriage driver					2.9
Brokerage					1.1
Total variable cost					7.035
fare price					19.5
Contribution margin when brokerage paid					12.465
Contribution margin when brokerage not paid					13.565
Weighted Contribution margon (12.465*.6+13.565*.4)					12.905
Fixed cost:
Monthly cost of leasing					49000
Monthly payroll cost					8500
marketing expense					8000
Total fixed cost					65500
Desired profits:					91,000
Desired contribution(65500+91000)					156500
Number of Passengers : Desired contribution / weighted contribution per passenger
		($156500 / 12.905) = 12127 passengers
Req 6:
After tax profits : $91,000
Tax rate: 34%
Before tax profits ( 91,000 / 66%) = $137,879
Fixed cost = $ 65500
Desired contribution: (137879+65500) = 203,379
Contribution margin ratio : Weighted contribution per passenger / fare price
		($12.905 /19.50 ) *100 = 66.18%
Therefore, Desired Revenue = Desired contribution / Contribution margin ratio
		(203,379 / 66.18%) = $307,312
Req 7:
Number of tickets sold: 6078 tickets
Weighted contribution margin per ticket : 12.905
Total contribution earned (6078*12.905) = $ 78,437
maximum Leasing and boarding cost that can be paid :
Contribution earned				78,437
Less: Monthly payroll cost				8500
Less: Marketing expense				8000
Maximum Amount that can be paid				61937