How to Ensure Profitability for Hammerhead Charters

a. How many trips must Hammerhead sell to break even?

b. How many trips must Hammerhead sell to earn a monthly operating profit of $13,050 after taxes?

Answer:

a. To calculate the number of trips Hammerhead must sell to break even, we need to consider the fixed costs and the contribution margin per trip.

b. To calculate the number of trips Hammerhead must sell to earn a monthly operating profit of $13,050 after taxes, we need to consider the fixed costs, taxes, and the desired profit.

In order to determine the number of trips that Hammerhead Charters must sell to break even, we need to consider the fixed costs and the contribution margin per trip. The contribution margin per trip is calculated by subtracting the variable costs per trip from the price per trip. The price per trip is $110, the variable costs per trip are $50, and the fixed costs amount to $20,400 per month.

Contribution Margin per Trip = Price per Trip - Variable Costs per Trip

Contribution Margin per Trip = $110 - $50 = $60

Break-even Trips = Fixed Costs / Contribution Margin per Trip

Break-even Trips = $20,400 / $60 = 340

Therefore, Hammerhead must sell 340 trips to break even.

When calculating the number of trips Hammerhead must sell to earn a monthly operating profit of $13,050 after taxes, we need to take into account the fixed costs, taxes, and the desired profit. The tax rate is 25%.

Desired Profit after Taxes = $13,050

Tax Rate = 25%

Profit before Taxes = Desired Profit after Taxes / (1 - Tax Rate)

Profit before Taxes = $13,050 / (1 - 0.25) = $17,400

Number of Trips for Desired Profit = (Fixed Costs + Profit before Taxes) / Contribution Margin per Trip

Number of Trips for Desired Profit = ($20,400 + $17,400) / $60

Number of Trips for Desired Profit = 640

Therefore, Hammerhead must sell 640 trips to earn a monthly operating profit of $13,050 after taxes.