Question

Brilliant Travel Agency specializes in flights between Toronto and Jamaica. It books passengers on Ontario Air. Brilliant's fixed costs are $36,000 per month. Ontario Air charges passengers $1,300 per round-trip ticket. Calculate the number of tickets Brilliant must sell each month to (a) break even and (b) make a target operating income of $12,000 per month in each of the following independent cases. 1. Brilliant's variable costs are $34 per ticket. Ontario Air pays Brilliant 10% commission on ticket price. 2. Brilliant's variable costs are $30 per ticket. Ontario Air pays Brilliant 10% commission on ticket price. 3. Brilliant's variable costs are $30 per ticket. Ontario Air pays $46 fixed commission per ticket to Brilliant. Comment on the results. 4. Brilliant's variable costs are $30 per ticket. It receives $46 commission per ticket from Ontario Air. It charges its customers a delivery fee of $8 per ticket. Comment on the results

Answer 1

To break even, Brilliant Travel Agency needs to sell enough tickets to cover all costs, which can be calculated using the fixed costs and the variable costs per ticket. To make a target operating income of $12,000 per month, the number of tickets needed to be sold can be calculated by adding the target operating income to the fixed costs and dividing by the difference between the revenue per ticket and the variable costs per ticket.

Step-by-step explanation:

In order to calculate the number of tickets Brilliant Travel Agency needs to sell each month to break even, we need to determine the total costs and the contribution margin per ticket.

The total costs consist of the fixed costs and the variable costs per ticket. The contribution margin is the revenue per ticket minus the variable costs per ticket.

(a) To break even, Brilliant needs to sell enough tickets to cover the total costs. The total costs are the fixed costs plus the variable costs per ticket multiplied by the number of tickets to be sold:

Total costs = Fixed costs + (Variable costs per ticket x Number of tickets)

Setting the total costs equal to the revenue per ticket multiplied by the number of tickets will give us the break-even point:

Revenue per ticket x Number of tickets = Fixed costs + (Variable costs per ticket x Number of tickets)

Let's solve for the number of tickets:

Number of tickets = Fixed costs / (Revenue per ticket - Variable costs per ticket)

(b) To calculate the number of tickets Brilliant needs to sell in order to make a target operating income of $12,000 per month, we add the target operating income to the fixed costs:

Total costs = Fixed costs + Target operating income

Setting the total costs equal to the revenue per ticket multiplied by the number of tickets will give us the target operating income point:

Revenue per ticket x Number of tickets = Fixed costs + Target operating income

Let's solve for the number of tickets:

Number of tickets = (Fixed costs + Target operating income) / (Revenue per ticket - Variable costs per ticket)

Answer 2

To determine the break-even point and target operating income for Brilliant Travel Agency, contributions margins from commissions and fees must be calculated and used to ascertain the number of tickets that must be sold under different cost and commission structures.

Step-by-step explanation:

The question involves calculating the break-even point and the target operating income for the Brilliant Travel Agency. When calculating the break-even point and target income for various commission structures and variable costs, the basic formula used is:

Total Revenue = Total Variable Costs + Total Fixed Costs + Target Operating Income

In each case, the revenue per ticket must be found by considering the commission and delivery fees, and the break-even point is reached when the total revenue equals the total costs (fixed and variable). To find the number of tickets required to meet the target operating income, we add the income to the fixed costs and calculate accordingly.

1. When the variable costs are $34 per ticket, and Brilliant earns a 10% commission, the contribution margin per ticket is the commission minus variable costs.
2. If the variable costs are $30 per ticket and Brilliant still earns a 10% commission, the contribution margin per ticket is increased, leading to fewer tickets needed to break even or meet a target income.
3. With variable costs of $30 per ticket and a fixed commission of $46, the contribution margin per ticket is $46 minus the $30, making the number of tickets required to break even or achieve the target income different from the percentage-based commission scenarios.
4. Finally, when Brilliant has $30 variable costs and receives a $46 commission per ticket plus an $8 delivery fee, its contribution margin per ticket is further increased, thus decreasing the number of tickets needed to meet financial goals.

Observing the results, it's clear that the structure of the commission and additional fees significantly impact the number of tickets Brilliant needs to sell to meet its financial objectives.