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Calculation of break even sales using CVP formula.
The following are the monthly fixed expenses for Peyton Travel:
Office rent:
$3,000.00
Depreciation of office furniture
200
Utilities
110
Telephone
520
Reservation Service Fees
380
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)?
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