Question

Bristol Car Service offers airport service in a mid-size city. Bristol charges $32 per trip to or from the airport. The variable cost for a trip totals $26, for fuel, driver, and so on. The monthly fixed cost for Bristol Rainbow Tours is $1,140. Required: a. How many trips must Bristol sell every month to break even? b. Bristol's owner believes that 200 trips is a reasonable forecast of the average monthly demand. What is the margin of safety in terms of the number of airport trips? Break-even pointſ b. Margin of safety trips trips

Answer 1

Selling price per unit = $32

Variable cost per unit = $26

Contribution margin per unit = Selling price per unit - Variable cost per unit

= 32-26

= $6

Fixed cost = $1,140

(a)

Break even point = Fixed cost/ Contribution margin per unit

= 1,140/6

= 190 trips

(b)

Margin of safety = Actual sales - Break even sales

= 200-190

= 10 trips

a.	Break even sales	190	trips
b.	Margin of safety	10	trips

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