Breakeven point and competitive contribution margin analysis Johnson Company and Smith Company are competing firms that offer limousine service from the Charlesburg airport. While Johnson pays most of its employees on a per-ride basis, Smith prefers to pay its employees fixed salaries. Information about the selling prices per ride and cost structures of the two firms is given below.

Required(a) Calculate the breakeven point in the number of rides for both firms.(b) Draw two graphs plotting profit as a function of the number of rides for the two firms.(c) Explain which firm??s cost structure is more profitable.(d) Explain which firm??s cost structure isriskier.

Transcribed Image Text:

SMITH COMPANY JOHNSON COMPANY COST CATEGORY Selling price per ride Variable cost per ride Contribution margin per ride Fixed costs per year 530 24 S30 15 15 $300,000 $1,500,000