Problem:
Short-term automobile rentals are the specialty of ASAP Auto Rentals, Inc. Average variable operating costs have been $12.50 per day per automobile. The company owns 60 automobiles. Fixed operating costs for the next year are expected to be $145,500. Average daily rental revenue per automobile is expected to be $34.50. Management would like to earn a profit of $47,000 during the year.
1. Calculate the total number of daily rentals the company must have during the year to earn the targeted profit.
2. On the basis of your answer to 1, determine the average number of days each automobile must be rented.
3. Determine the total revenue needed to achieve the targeted profit of $47,000.
4. What would the total rental revenue be if fixed operating costs could be lowered by $5,180 and the targeted profit increased to $70,000?