Exercise 9-22 Name:
Insert your answers into the gray-shaded cells. Enter formulas where appropriate.
If an answer is incorrect, the word “wrong” will appear.
a. Daily Ferry Usage
Daily tolls 1,450$
Divided by cost per passenger 0.50
People using ferry on daily basis 2,900
b. Breakeven in Passengers
Daily cost 2,000$
Divided by passengers per day 2,900
Breakeven price 0.69$
Daily cost 2,000$
Desired profit 250
Total 2,250
Divided by passengers per day 2,900
Price to make $250 per day 0.78$
c. Changing the rate if some of the cost is fixed and variable
Variable daily costs 20% 400$
Divided by passengers per day 2,900
Variable cost per passenger 0.138$
Revision Current
Revenue at current level 1,450$
Revenue if toll raised 1,566.00$
Less variable cost 365.40
Contribution margin 1,200.60$
Less fixed cost 80% 1,600.00 2,000
Net profit (loss) (399.40)$ (550)$
County would be better off by 150.60$
d. Increase toll to 0.70 with a 5% decline in use
Revenue 1,928.50$
Less variable cost 385.70
Contribution margin 1,542.80$
Solution
Percent of
2,000 Daily Cost
Less fixed cost 1,600.00
Net profit (loss) (57.20)$
e. Discuss the saying “We may be showing a loss, but we can make it up in volume.”
Increasing volume will help improve profitability only if the volume change increases
contribution margin. Because an increase in volume can often be achieved only with a
decrease in price, the change in contribution margin may be negative rather than positive.
Increasing volume will help improve profitability only if the volume change increases
contribution margin. Because an increase in volume can often be achieved only with a
decrease in price, the change in contribution margin may be negative rather than positive.