Question

1. Qawi Tourism Company specializes in flights between Bahrain and Berlin. It books passengers on Gulf Airlines at 500 BD per round-trip ticket. Until last month, Gulf Airlines paid a commission of 20% of the ticket price paid by each passenger. This commission was Qawi's only source of revenues. Qawi's fixed costs are 10,000 BD per month (for salaries, rent, and so on), and its variable costs are 60 BD per ticket purchased for a passenger. This 60 BD includes sales commissions, bonuses and per ticket delivery fee paid to DHL. Gulf Airlines has just announced a revised payment schedule for all agent companies. It will now pay agents a 20% commission per ticket up to a maximum of 60 BD. Any ticket costing more than 300 BD generates only a 60 BD commission, regardless of the ticket price. 5 (6 Points) Required 1: Under the old 20% commission structure, how many round-trip tickets must Qawi sell each month (a) to break even and (b) to earn an operating income of 20,000 BD? Do not write only the results write also the

Answer 1

Qawoi income source 20% commission

Ticket price = 500BD

Hence commission is 500 x 20% =100 BD

Fixed cost is 10000 BD

Variable cost is= 60 BD per sales

Contribution is = Revenue - Variable cost

100 - 60 = 40BD

Break even = Fixed cost / contribution

10000/40 =250 trips

a) Hene they need 250 trips to break even .

b) Desired income 20000

Formula for same is Fixed cost + Desired income/contribution

10000+200000/40 = 750

Hence they need 750 trips to earn operating profit of 20000BD