Answer to Question #288257 in Accounting for Joseph

Question

Sunshine Tours is a travel agency specializing in flights between Toronto and Jamaica.

It books passenger on Canadian air and charges passengers $1,000 per round-trip ticket.

Sunshine’s fixed costs are $22,000 per month. Its variable costs per ticket, including a delivery

fee is $18 (assume each ticket is purchased in a separate package. Thus the delivery fee applies

to each ticket)

Maryland International College Page 3

Required: -

1) What number of tickets Sunshine must sell each month to

a) Break even

b) Make a target operating income of $10,000

2) Assume another company, TNT Express, offers to charge Sunshine only $12 per ticket.

How would accepting this offer affect your answer to (a) and (b) in requirement 1?

Answer 1

1)a)

$Q=\frac{FC}{P-VC}=\frac{22000}{1000-36}=22.82$

b)$Q=\frac{10000}{10000-36}=10.37$

2)$Q=\frac{FC}{P-VC}=\frac{22000}{1000-24}=22.54$

A similar level of contribution margin can be achieved at a lower variable cost price