Problem
Latin Adventure Travel is opening an office in Tucson. Fixed monthly expenses are office rent[$3,000] depreciation on office furniture [$200], utilities [$110], a special telephone line [$520], a connection with the airlines' computerized reservation service [$380], and the salary of a travel agent [$1,400]. Variable expenses include commissions for the travel agent[5%of sales], advertising[6%ofsales], supplies and postage [1% of sales], and usage fees for the telephone line and computerized reservation service[3% of sales].
1. Use the contribution margin ratio CVP formula to compute Latin Adventure's break-even sale in dollars. If the average sale is a $600 plane ticket, how many tickets must be sold to break even?
2. Use the income statement equation approach to compute the dollar sales needed to earn a target monthly operating income of $6,290.
3. Assume that the average sale price decreases to $440 per ticket. Use the contribution margin approach to compute the new break-even point in tickets sold. How does the lower sale price affect the break-even point?