Question

Milo is planning to rent out Segway Personal Transporters near a popular park in Vancouver for 90 days this summer. He purchased three Segways for $6500 each. The Segways are battery-powered electric vehicles that will be driven an average of 60 kilometres in a day. By purchasing two additional batteries for$995 each, Milo expects that he’ll be able to keep his Segways adequately charged to meet his daily demand. Milo’s other expenses will include space rental and utilities for a total of $100 per day, as well as insurance of $15 per Segway per day.*

1. If Milo charges $35 per half-hour tour (approximately 10 kilometres), how much profit does he expect to make this summer?
What is the lowest price he could charge per half-hour tour and still break even?
If he wants to realize a profit of $300 per day, how much more should he charge per half-hour

Answer 1

Milo's expected profit for the summer is $22,160 from renting out Segways. To break even, the lowest price he could charge per half-hour tour would be $21.37, and to achieve a $300 daily profit, he would need to charge $51.67 per half-hour tour.

Step-by-step explanation:

Calculating Milo's Profit and Pricing Strategy

Milo’s initial investment for the Segways is 3 × $6500 = $19,500, and for the batteries is 2 × $995 = $1990, totaling $21,490. Daily expenses include space rental and utilities ($100) and insurance for three Segways ($45), resulting in daily expenses of $145. Over 90 days, the total recurring cost will be 90 × $145 = $13,050, bringing the overall cost to $21,490 + $13,050 = $34,540.

To calculate profit, we need to determine the number of half-hour tours Milo can offer in a day. Given each Segway can travel 60 kilometres per day and each tour is around 10 kilometres, each Segway can conduct 6 tours daily. Thus, Milo can potentially conduct 18 tours per day, with a revenue of 18 × $35 = $630 daily. Over the 90-day period, total revenue would be 90 × $630 = $56,700. Subtracting the total costs from the total revenue yields a profit of $56,700 - $34,540 = $22,160.

To break even, Milo needs to cover the total costs of $34,540 over the 90 days. If he provides 18 tours per day, this means each tour needs to be priced at at least $34,540 ÷ (90 × 18) = $21.37. To reach a profit goal of $300 per day, Milo requires an additional total daily revenue of $27,000 (90 days × $300). This equates to an additional $27,000 ÷ (90 × 18) = $16.67 per tour. Therefore, to make a profit of $300 per day, Milo should charge $35 + $16.67 = $51.67 per half-hour tour.

Answer 2

Milo to break even must charge at least $11.33 per half-hour tour. For a daily profit of $300, he should charge an additional $9.97 per tour, totaling $20.30. Initial costs and daily expenses were calculated to reach this conclusion.

Step-by-step explanation:

Profit Calculation for Segway Rentals

Milo's initial investment includes the cost of purchasing three Segways at $6,500 each and two additional batteries at $995 each. The total purchase cost is $21,985.

Milo's daily expenses total $145 per Segway (including $100 for space rental and utilities, and $15 for insurance per Segway), and since there are three Segways, the total daily expense is $435. Over 90 days, the total operational expenses will be $39,150.

To calculate the break-even point, we add the total purchase cost with total operational expenses, resulting in $61,135. By dividing this by 90 days and 6 half-hour tours per day (assuming 60 km driven and 10 km per tour), we find that the breakeven cost per half-hour tour is around $11.33. To profit, this figure must be exceeded.

If Milo wants a profit of $300 per day, the profit for the entire summer would be $27,000. Adding this to the breakeven cost, the total revenue required is $88,135. Dividing by 540 half-hour tours (90 days * 6 tours per day), the new price per half-hour tour for the desired profit would be approximately $20.30, which is $9.97 more than the breakeven rate.