Question

ment CALCULATOR « BACK Exercise 5-11 (Video) (Part Level Submission) Spencer Kars provides shuttle service between four hotels near a medical center and an international airport. Spencer Kars uses two 10-passenger vans to offer 12 round trips per day. A recent month's activity in the form of a cost-volume-profit income statement is shown below. Sales (1,500 passengers) $36,000 Variable costs Fuel $5,040 Tolls and parking 3,100 Maintenance 860 9,000 Contribution margin 27,000 Fixed costs Salaries 15,700 Depreciation 1,300 Insurance 1,000 18,000 Net Income $9,000

Answer 1

Particulars	Amount
Sales for 1500 passenger - given in the question	$                                                36,000
Sales per passenger = Total sales/1500 passenger	$                                                        24
Total variable cost (given in the question)	$                                                  9,000
Variable cost per passenger = Total variable cost/1500 passenger	$                                                           6
Fixed cost (given in the question)	$                                                18,000
Break even point is when the company does not incur any profit nor any losses. Formula to calculate break even point as below:
Using the above calculated numbers and inputting the same in the formula
Break even point (passenger) =	Total fixed cost/ (Sales per passenger - Variable cost per passenger)
	18000/(24-6)
	18000/18
	1000
Therefore, as calculated above, 1000 passengers are required for Spencer Kars to break even
This can be verified as below:
Sales for 1000 passenger = 24 sales per passenger * 1000 passenger	$                                                24,000
Variable cost for 1000 passenger = 6 variable cost per passenger * 1000 passenger	$                                                (6,000)
Fixed cost (as given, would not change and remain same)	$                                              (18,000)
Net income	$                                                         -