How many tickets must be sold to reach break-even


Problem:

The following are the monthly fixed expenses for Peyton Travel:

Office rent:                            $3,000.00
Depreciation of office furniture    200.00
Utilities                                      110.00
Telephone                                  520.00
Reservation Service Fees            380.00
Travel Agent Salaries               1,400.00

Variable expenses include the following:

Travel Agent Commission                                  5.0% of sales
Advertising                                                       6.0% of sales
Supplies and Postage                                         1.0% of sales
Telephone and Reservation Service usage fees    3.0% of sales

Q1. Use the contribution margin ratio CVP formula to compute Peyton Travel's break-even sales in dollars. If the average sales price of a ticket is $660.00; how many tickets must be sold to reach break-even?

Q2. Use the income statement equation [revenue - (variable expense + fixed expense) = operating income] to compute the dollar sales needed to earn a target monthly operating income of $6,290.00. How many tickets is this if the average sales price of a ticket is $660.00?

Q3. Assume the average sales price decreases to $440.00 per ticket. Use the contribution margin approach to compute Peyton Travel's new break-even point in tickets sold. How does this compare to your answer in part (1) ?

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Finance Basics: How many tickets must be sold to reach break-even
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