Wembley Travel Agency books flights on United Airlines. Under United's old commission structure of 10% per ticket, Wembley needs to sell 140 tickets to break even and 200 tickets to earn $7,000 income. United's new structure caps commissions at $50 per ticket over $500. This increases the number of tickets needed to break even or earn $7,000 income.
Sunny Spot Travel Agency books flights on Canadian Air. It needs to sell between 80-120 tickets per month to break even and 120-180 tickets to earn $17,000, depending on its variable costs and commission structure from Canadian Air. Higher variable costs or lower commissions increase the number of tickets needed.
Wembley Travel Agency books flights on United Airlines. Under United's old commission structure of 10% per ticket, Wembley needs to sell 140 tickets to break even and 200 tickets to earn $7,000 income. United's new structure caps commissions at $50 per ticket over $500. This increases the number of tickets needed to break even or earn $7,000 income.
Sunny Spot Travel Agency books flights on Canadian Air. It needs to sell between 80-120 tickets per month to break even and 120-180 tickets to earn $17,000, depending on its variable costs and commission structure from Canadian Air. Higher variable costs or lower commissions increase the number of tickets needed.
Wembley Travel Agency books flights on United Airlines. Under United's old commission structure of 10% per ticket, Wembley needs to sell 140 tickets to break even and 200 tickets to earn $7,000 income. United's new structure caps commissions at $50 per ticket over $500. This increases the number of tickets needed to break even or earn $7,000 income.
Sunny Spot Travel Agency books flights on Canadian Air. It needs to sell between 80-120 tickets per month to break even and 120-180 tickets to earn $17,000, depending on its variable costs and commission structure from Canadian Air. Higher variable costs or lower commissions increase the number of tickets needed.
Wembley Travel Agency books flights on United Airlines. Under United's old commission structure of 10% per ticket, Wembley needs to sell 140 tickets to break even and 200 tickets to earn $7,000 income. United's new structure caps commissions at $50 per ticket over $500. This increases the number of tickets needed to break even or earn $7,000 income.
Sunny Spot Travel Agency books flights on Canadian Air. It needs to sell between 80-120 tickets per month to break even and 120-180 tickets to earn $17,000, depending on its variable costs and commission structure from Canadian Air. Higher variable costs or lower commissions increase the number of tickets needed.
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COST ASSIGNMENT LEVEL FOUR
Assignment One (35%)
1. Wembley Travel Agency specializes in flights between Los Angeles and London. It books passengers on United Airlines at $900 per round-trip ticket. Until last month, United paid Wembley a commission of 10% of the ticket price paid by each passenger. This commission was Wembley’s only source of revenues. Wembley’s fixed costs are $14,000 per month (for salaries, rent, and so on), and its variable costs are $20 per ticket purchased for a passenger. This $20 includes a $15 per ticket delivery fee paid to Federal Express. (To keep the analysis simple, we assume each round-trip ticket purchased is delivered in a separate package. Thus, the $15 delivery fee applies to each ticket.) United Airlines has just announced a revised payment schedule for all travel agents. It will now pay travel agents a 10% commission per ticket up to a maximum of $50. Any ticket costing more than $500 generates only a $50 commission, regardless of the ticket price. Required: i. Under the old 10% commission structure, how many round-trip tickets must Wembley sell each month (a) to break even and (b) to earn an operating income of $7,000? ii. How does United’s revised payment schedule affect your answers to (a) and (b) in requirement i?
2. Sunny Spot Travel Agency specializes in flights between Toronto and Jamaica. It books passengers on Canadian Air. Sunny Spot’s fixed costs are $23,500 per month. Canadian Air charges passengers $1,500 per round-trip ticket. Calculate the number of tickets Sunny Spot must sell each month to (a) break even and (b) make a target operating income of $17,000 per month in each of the following independent cases. Required: 1. Sunny Spot’s variable costs are $43 per ticket. Canadian Air pays Sunny Spot 6% commission on ticket price.
RESHID1 | P a g e 2. Sunny Spot’s variable costs are $40 per ticket. Canadian Air pays Sunny Spot 6% commission on ticket price. 3. Sunny Spot’s variable costs are $40 per ticket. Canadian Air pays $60 fixed commission per ticket to Sunny Spot. Comment on the results. 4. Sunny Spot’s variable costs are $40 per ticket. It receives $60 commission per ticket from Canadian Air. It charges its customers a delivery fee of $5 per ticket. Comment on the results.
3. The Doral Company manufactures and sells pens. Currently, 5,000,000 units are sold per year at $0.50 per unit. Fixed costs are $900,000 per year. Variable costs are $0.30 per unit. Required Consider each case separately: 1. a. What is the current annual operating income? b. What is the present breakeven point in revenues? Compute the new operating income for each of the following changes: 2. A $0.04 per unit increase in variable costs 3. A 10% increase in fixed costs and a 10% increase in units sold 4. A 20% decrease in fixed costs, a 20% decrease in selling price, a 10% decrease in variable cost per unit, and a 40% increase in units sold Compute the new breakeven point in units for each of the following changes: 5. A 10% increase in fixed costs 6. A 10% increase in selling price and a $20,000 increase in fixed costs
PROJECT Example (1) Topper Sports Inc., produces high-quality sports equipment. The company’s Racket Division Manufactures three tennis rackets – the Standard, the Deluxe, and the Pro- that are widely used in amateur play. Selected information on the rackets is given below:
RESHID2 | P a g e Standard Deluxe Pro
Selling price per racket Br. 40.00 Br. 60.00 Br. 75.00 Variable expenses per racket: Production 22.00 27.00 40.45
Selling (5% of selling price) 2.00 3.00 3.75
All sales are made thorough the company’s own retail outlets. The Racket Division has the following fixed costs:
Per Month
Fixed production costs………………………….Br. 120, 000
Advertising expenses…………………………… 100, 000
Administrative salaries…………………………. 50, 000
Total Br.270, 000
Sales, in units, for the month of May have been as follows:
Standard Deluxe Pro Total
Sales in units………… …..2, 000 1, 000 5, 000 8, 000
Instructions:
a. Compute the weighted- average unit contribution margin, assuming the above sales mix is maintained. b. Compute the Racket Division’s break-even point in birrs for May. c. How many units of each product should the company sale in order to earn a Br.162, 000 income? Ignore income taxes.
