Classic Limo, Inc. provides limousine service to Tri-Cities airport. The price of the service is fixed at
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Question:
Scenario Contribution Margin Per Ride (Price - Variable cost) Number of Customers
Excellent $40 10,500
Fair $25 6,000
Poor $15 4,500
In addition to the costs of a ride, Marc estimates that other service costs are $50,000 plus $5 for each customer (ride) in excess of 6,000 rides. Annual administrative and marketing costs are estimated to be $25,000 plus 10% of the contribution margin.
Required:
- Using the above information, construct an Excel spreadsheet to develop analysis of the possible operating income for Classic Limo, Inc..
- If you were manager of Classic Limo, Inc. and had to choose only one budget scenario to use for planning for the year, which one of the nine scenarios would you choose? This should be based on the scenario that is most likely. Be sure not to just go with the one you or the company would prefer.
- Prepare steps for the thought process used to make the final budgeting decision. The paper must include what assumptions were made (i.e. - location of airport, economic conditions) and the full rationale behind your decision.
- While you have to freedom to make certain assumptions to support your selection, you must use at least two outside sources with factual information to support your decision as well (i.e. - fuel prices, weather conditions, tourism statistics).
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