Question
Question 4 (15 marks) Western Travel Agency specializes in flights between Brisbane and London. It books passengers on Virgin Airlines at $900 per round-trip
Question 4 (15 marks) Western Travel Agency specializes in flights between Brisbane and London. It books passengers on Virgin Airlines at $900 per round-trip ticket. Until last month, Virgin paid Western a commission of 11% of the ticket price paid by each passenger. This commission was Western's only source of revenues. Western's fixed costs are $16,000 per month (for salaries, rent, and so on), and its variable costs are $22 per ticket purchased for a passenger. Virgin Airlines has just announced a revised payment schedule for all travel agents. It will now pay travel agents a 10% commission per ticket up to a maximum of $50. Any ticket costing more than $500 generates only a $50 commission, regardless of the ticket price. Required: a) Under the old 10% commission structure, how many round-trip tickets must Wembley sell each month i) to break even and ii) to earn an operating income of $7,000? (2 marks) (3 marks) b) How does Virgin's revised payment schedule affect your answers in Part a (i) and (ii)? (5 marks) (Round up all your answers) c) How useful is cost-volume-profit (CVP) analysis for the management of Western Travel Agency in regards to the revised commission? (5 marks)
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