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Homework answers / question archive / Mio Canoe Livery rents canoes and transports canoes and customers to and from their canoe trip on a local river
Mio Canoe Livery rents canoes and transports canoes and customers to and from their canoe trip on a local river. The trip is priced at $20 per person and has a CM ratio of 30%. Mio's fixed expenses are $84,000. Last year, sales were $400,000 and profit was $36,000. How many units need to be sold to break-even, and how many need to be sold to earn a profit of $42,000? A) 1,800 and 2,100 B) 6,000 and 8,143 OC) 14,000 and 21,000 D) 4,200 and 6,300
Solution: option-c
Explanation: CM Ratio = (Sale price per unit - VC per unit) / Sale price per unit
0.3 = (20 - VC per unit) / 20
0.3 * 20 = 20 - VC per unit
6 = 20 - VC per unit
VC per unit = 20-6 = 14
Contribution margin = Sale price per unit - VC per unit = 20 - 14 = 6
Break-even point (in units): Fixed costs / Contribution margin = 84000 / 6 = 14000
Target profit = 42000;
Units to be sold to earn profit of $42000 = (FC + Profit) / Contribution margin = (84000 + 42000) / 6 = 21000
