Calculation of break even sales using CVP formula.
The following are the monthly fixed expenses for Peyton Travel:
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Office rent:
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$3,000.00
|
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Depreciation of office furniture
|
200
|
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Utilities
|
110
|
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Telephone
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520
|
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Reservation Service Fees
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380
|
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Travel Agent Salaries
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1,400.00
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Variable expenses include the following:
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Travel Agent Commission
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5.0% of sales
|
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Advertising
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6.0% of sales
|
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Supplies and Postage
|
1.0% of sales
|
|
Telephone and Reservation Service usage fees
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3.0% of sales
|
a) Use the contribution margin ratio CVP formula to compute Peyton Travel's break-even sales in dollars. If the average sales price of a ticket is $660.00; how many tickets must be sold to reach break-even?
b) Use the income statement equation [revenue - (variable expense + fixed expense) = operating income] to compute the dollar sales needed to earn a target monthly operating income of $6,290.00. How many tickets is this if the average sales price of a ticket is $660.00?
c) Assume the average sales price decreases to $440.00 per ticket. Use the contribution margin approach to compute Peyton Travel's new break-even point in tickets sold. How does this compare to your answer in part a)?