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Bristol Car Service offers airport service in a mid-size city. Bristol charges $44 per trip to...

Bristol Car Service offers airport service in a mid-size city. Bristol charges $44 per trip to or from the airport. The variable cost for a trip totals $32, for fuel, driver, and so on. The monthly fixed cost for Bristol Rainbow Tours is $2,640. Required: a. How many trips must Bristol sell every month to break even? b. Bristol's owner believes that 245 trips is a reasonable forecast of the average monthly demand. What is the margin of safety in terms of the number of airport trips?

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Answer #1

a. Break even sales = Fixed cost / Contribution margin per unit

Fixed cost = $2,640

Contribution margin per unit = Sales - Variable cost per unit

= $44 - $32

= $12

Break even sales = $2,640 / $12

= 220 trips

b.  

Margin of safety = Actual sales - Break even sales

= 245 - 220

= 25 trips

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