Question

Bramble Kars provides shuttle service between four hotels near a medical center and an international airport. Bramble Kars uses two 10-passenger vans to offer 12 round trips per day. A recent month’s activity in the form of a cost-volume-profit income statement is shown below. Fare revenues (1,450 fares) $36,250 Variable costs Fuel $4,350 Tolls and parking 2,175 Maintenance 725 7,250 Contribution margin 29,000 Fixed costs Salaries 17,300 Depreciation 1,430 Insurance 1,110 19,840 Net income $9,160 Calculate the break-even point in dollars. Break-even point $ eTextbook and Media Calculate the break-even point in number of fares. Break-even point fares eTextbook and Media Without calculations, determine the contribution margin at the break-even point. Contribution margin at the break-even point $

Answer 1

contribution margin at break even point = $19,840

Step-by-step explanation:

total revenues $36,250

variable costs ($7,250)

• fuel ($4,350)
• tolls and parking ($2,175)
• maintenance ($725)

contribution margin $29,000

fixed costs ($19,840)

• salaries ($17,300)
• depreciation ($1,430)
• insurance ($1,110)

net income $9,160

contribution margin at break even point = $19,840

The contribution margin represents the point where total revenue is barely enough to cover for fixed expenses. Any revenue above the contribution margin will result in profits, but if revenues are lower, the company will suffer losses.

In this case, the contribution margin at break even point = total fixed expenses.

The formula used to calculate break even point in units is:

break even point in units = total fixed costs / contribution margin per unit

• total fixed costs = $19,840
• contribution margin per unit = ($36,250/1,450 fares) - ($7,250/1,450 fares) = $25 - $5 = $20

break even point in units = $19,840 / $20 = 992 fares