Reference no: EM133031014
Question - Smart Travel (Pty) Ltd is a corporate travel agent that specialise in organising flights between Cape Town and Johannesburg. Smart Travel books passengers on Kulala Airline which charges passengers R2 760 per round-trip ticket, in return Smart Travel receives a commission of 15% of the ticket price paid by the passenger.
The following information is available:
- Budgeted fixed costs are R90 000 per month.
- Budgeted variable costs per ticket are 12% of the commission earned per ticket.
- During the 2020 financial year, Smart Travel applied for a cash financing at First Capital Bank in order to boost its low cash flow. In the process of applying for the finance, the Financial Manager submitted financial statements with errors to the bank regardless of the fact that, he was advised by an independent reviewer to correct the following issues:
-Smart Travel accounted for revenue from sale of tickets at 100% of the selling price of the tickets which also includes VAT.
-The Financial Manager indicated that, Smart Travel had to get the funding at all cost because, if the loan was not granted by First Capital Bank the company would have not managed to cover its employee cost expense in some of the months during the year.
Required -
(i) Calculate the number of tickets that Smart Travel must sell per month to break-even.
(ii) Calculate the number of tickets that Smart Travel must sell to make a profit of R45000 per month.
(iii) Calculate the margin of safety ratio if Smart Travel sells 300 tickets per month.