"Dim Witt is the county commissioner of Clueless County. He decided to institute tolls for local ferry boat passengers. After the tolls had been in effect for four months, Astra Astute, county accountant, noticed that collecting $1,450 in tolls incurred a daily cost of $1,800. The toll is $0.50 per passenger. a. How many people are using the ferry each day? b. If the $1,800 cost is entirely fixed, how much must each passenger be charged for the toll process to break even? How much each passenger must be charged for the toll process to make a profit of $250 per day? c. Assume that only 80 percent of the $1,800 is fixed and the remainder varies by passenger. If the toll is raised to $0.60 per person, passenger volume is expected to fall by 10 percent. If the toll is raised and volume falls, will the county be better or worse off than it is currently and by what amount? d. Assume that only 80 percent of the 1,800 is fixed and the remainder varies by passenger. If passenger volume will decline by percent for every $0.20 increase from the current $0.50 rate, at what level of use and toll amount would the county first make a profit? e. Discuss the saying ?We may be showing a loss, but we can make it up in volume.?

Exercise 9-22 Name: Insert your answers into the gray-shaded cells. Enter formulas where appropriate. If an answer is incorrect, the word "wrong" will appear. a. Daily Ferry Usage Daily tolls Divided by cost per passenger People using ferry on daily basis ### ### b. Breakeven in Passengers Daily cost Divided by passengers per day Breakeven price ### ### Daily cost Desired profit Total Divided by passengers per day Price to make $250 per day ### ### ### c. Changing the rate if some of the cost is fixed and variable Percent of 2,000 Daily Cost Variable daily costs Divided by passengers per day Variable cost per passenger ### ### Revision Current Revenue at current level Revenue if toll raised Less variable cost Contribution margin Less fixed cost Net profit (loss) ### ### County would be better off by d. Increase toll to 0.70 with a 5% decline in use Revenue Less variable cost Contribution margin Less fixed cost Net profit (loss) e. Discuss the saying "We may be showing a loss, but we can make it up in volume." Increasing volume will help improve profitability only if the volume change increases contribution margin. Because an increase in volume can often be achieved only with a decrease in price, the change in contribution margin may be negative rather than positive. ### ### ###