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Break Even Point for Peyton Travel

The following are the monthly fixed expenses for Peyton Travel:
Office rent: $3,000.00
Depreciation of office furniture 200.00
Utilities 110.00
Telephone 520.00
Reservation Service Fees 380.00
Travel Agent Salaries 1,400.00

Variable expenses include the following:
Travel Agent Commission 5.0% of sales
Advertising 6.0% of sales
Supplies and Postage 1.0% of sales
Telephone and Reservation Service usage fees 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) ?

Solution Preview

a. The Total fixed costs are $5,160 and the total variable costs are 15% of sales. The contribution margin is 85% of sales. For breakeven this contribution amrgin should be equal to the total foxed costs. We get 0.85 X sales = 5610. This gives sales as ...

Solution Summary

The solution explains how to calculate the breakeven point if the contribution margin and fixed costs change.