Treks 'n Rapids is a renowned adventure sports company based in New Delhi. It specializes in organizing tours to picturesque locations between New Delhi and Himachal Pradesh. It books tourists for Indica Travels, a travel company, at Rs. 9,000 per round-trip ticket. Until last month, Indica Travels paid Treks 'n Rapids a commission of 10 percent of the ticket price paid by each tourist.

According to records, the commission received from Indica Travels is Trek 'n Rapids only revenue. The fixed costs for Trek 'n Rapids, rent and salaries etc. total Rs. 1,40,000. For every ticket purchased on behalf of the tourists, the variable costs incurred by Trek 'n Rapids is Rs. 200. This amount also includes Rs. 150 that the company pays to their ticket delivery partners. For the sake of simplicity assume that all tickets are delivered individually even if the tickets are bought by a group of tourists.

Recently, Indica Travels has changed its policy and announced that it would pay Treks 'n Rapids 10 percent commission per ticket up to a maximum of Rs. 500. Regardless of the ticket price, any ticket value more than Rs. 5,000 will produce a maximum commission of Rs. 500.

1. Assume the adventure sports company is still following the old 10 percent commission structure. How many round-trip tickets must Treks 'n Rapids sell each month to (a) breakeven and (b) earn a profit of Rs. 70,000?

2. If Trek 'n Rapids follows the revised policy issued by Indica Travels, how will it influence the (a) break-even point and, (b) the number of tickets it will have to sell to make a profit of Rs. 70,000.

3. Describe sensitivity analysis. How does sensitivity analysis improve managerial decision making?

Answer rating: 100% (QA)

1 Old Commission Structure a To break even Total Fixed Costs Rs 140000 Contribution per Ticket Ticket Price Variable Cost Rs 9000 Rs 200 Rs 8800 Break... View the full answer