ACCT 2302 CH 7

FunTime Cruiseline offers nightly dinner cruises departing from several cities on the eastern coast of the United States including​Charleston, Baltimore, and Alexandria. Dinner cruise tickets sell for $50 per passenger. FunTime Cruiseline's variable cost of providing the dinner is $30 per ​passenger, and the fixed cost of operating the vessels​(depreciation, salaries, docking​fees, and other​expenses) is $210,000 per month. The​company's relevant range extends to 20,000 monthly passengers. If FunTime Cruiseline sells an additional 700 ​tickets, by what amount will its operating income increase​?

$14,000 CM per passenger x Additional tickets sold = Operating income increase $20 x 700 = $14,000

Caesars​ Palace® Las Vegas made headlines when it undertook a​ $75 million renovation. In​ mid-September 2015, the hotel closed its​ then-named Roman​ Tower, which was last updated in​ 2001, and started a major renovation of the 567 rooms housed in that tower. On January​ 1, 2016, the newly renamed Julius Tower​ reopened, replacing the Roman Tower. In addition to renovating the existing rooms and suites in the former Roman​ Tower, 20 guest rooms were added to the Roman Tower. With the renovation​ completed, Caesars expects the Julius Tower room rate to average around $149 per night. This​ increase, a $25 or​ 20.2% increase,​ reflects, in​ part, the room improvements. Assume that the annual fixed operating costs for the Julius Tower in Caesars​ Palace® Las Vegas will be $5,000,000. This amount represents an increase of​ $200,000 per year compared to​ pre-renovation. Also assume that the variable cost per hotel room night after the renovation is $27​; before the​ renovation, the variable cost per room night was $20. The contribution margin per room night after the renovation is $122​; before the​ renovation, the contribution margin per room night was $129. The average hotel occupancy​ rate, in​ 2014, for Caesars Entertainment Corporation was​ 91.2%, according to its 2014 Form​ 10-K. By​ comparison, the average hotel occupancy rate in Las Vegas​ overall, for that same time​ period, was​ 86.8%, according to Stastia.com. If Caesars has a target profit of $15,000,000​, how much sales revenue does the company need to make to achieve its target​ profit?

$24,390,244

Super Cruiseline offers nightly dinner cruises departing from several cities on the eastern coast of the United States including​Charleston, Baltimore, and Alexandria. Dinner cruise tickets sell for $80 per passenger. Super ​Cruiseline's variable cost of providing the dinner is $40 per ​passenger, and the fixed cost of operating the vessels​(depreciation, salaries, docking​fees, and other​expenses) is $240,000 per month. The ​company's relevant range extends to 17,000 monthly passengers. What is the contribution margin per​ passenger?

$40 sales price per passenger - variable cost per passenger = CM per passenger $80 - $40 = $40

FunTime Cruiseline offers nightly dinner cruises departing from several cities on the eastern coast of the United States including​Charleston, Baltimore, and Alexandria. Dinner cruise tickets sell for $50 per passenger. FunTime Cruiseline's variable cost of providing the dinner is $30 per​ passenger, and the fixed cost of operating the vessels​(depreciation, salaries, docking​fees, and other​expenses) is $210,000 per month. The​company's relevant range extends to 20,000 monthly passengers. compute the breakeven sales in dollars

$525,000 (fixed expenses + op income) / CM ratio = Breakeven sales ( $210,000 + $0 ) / 40% = $525,000

FunTime Cruiseline offers nightly dinner cruises departing from several cities on the eastern coast of the United States including​ Charleston, Baltimore, and Alexandria. Dinner cruise tickets sell for $50 per passenger. FunTimeFunTime ​Cruiseline's variable cost of providing the dinner is $30 per​ passenger, and the fixed cost of operating the vessels​ (depreciation, salaries, docking​ fees, and other​ expenses) is $210,000 per month. The​ company's relevant range extends to 20,000 monthly passengers. The breakeven units are 10,500 tickets sold. If FunTime Cruiseline sells 12,000 dinner​ cruises, compute the margin of safety in sales dollars

$75,000 expected sales in dollars - breakeven sales in dollars = margin of safety in dollars $600,000 - $525,000 = $75,000

FunTime Cruiseline offers nightly dinner cruises departing from several cities on the eastern coast of the United States including​ Charleston, Baltimore, and Alexandria. Dinner cruise tickets sell for $50 per passenger. FunTimeFunTime ​Cruiseline's variable cost of providing the dinner is $30 per​ passenger, and the fixed cost of operating the vessels​ (depreciation, salaries, docking​ fees, and other​ expenses) is $210,000 per month. The​ company's relevant range extends to 20,000 monthly passengers. The breakeven units are 10,500 tickets sold. If FunTime Cruiseline sells 12,000 dinner​ cruises, compute the margin of safety in units

1,500 expected sales in units - breakeven sales in units = margin of safety in units 12,000 - 10,500 = 1,500

FunTime Cruiseline offers nightly dinner cruises departing from several cities on the eastern coast of the United States including​Charleston, Baltimore, and Alexandria. Dinner cruise tickets sell for $50 per passenger. FunTime Cruiseline's variable cost of providing the dinner is $30 per​ passenger, and the fixed cost of operating the vessels​(depreciation, salaries, docking​fees, and other​expenses) is $210,000 per month. The​company's relevant range extends to 20,000 monthly passengers. compute the breakeven sales in units

10,500 units (fixed expenses + op income) / CM per unit = Breakeven units ( $210,000 + $0 ) / $20 = 10,500

FunTime Cruiseline offers nightly dinner cruises departing from several cities on the eastern coast of the United States including​ Charleston, Baltimore, and Alexandria. Dinner cruise tickets sell for $50 per passenger. FunTimeFunTime ​Cruiseline's variable cost of providing the dinner is $30 per​ passenger, and the fixed cost of operating the vessels​ (depreciation, salaries, docking​ fees, and other​ expenses) is $210,000 per month. The​ company's relevant range extends to 20,000 monthly passengers. The breakeven units are 10,500 tickets sold. If FunTime Cruiseline sells 12,000 dinner​ cruises, compute the margin of safety as a percentage of sales

12.5% margin of safety in dollars / expected sales in dollars = margin of safety as a percentage of sales $75,000 / $600,000 = 12.5%

Excel Cruiseline offers nightly dinner cruises departing from several cities on the eastern coast of the United States including​Charleston, Baltimore, and Alexandria. Dinner cruise tickets sell for $50 per passenger. Excel ​Cruiseline's variable cost of providing the dinner is $20 per ​passenger, and the fixed cost of operating the vessels​(depreciation, salaries, docking​fees, and other​expenses) is $210,000 per month. The​company's relevant range extends to 14,000 monthly passengers. The breakeven sales are 7,000 tickets sold Compute the operating leverage factor when Excel Cruiseline sells 8,750 dinner cruises.

5.0 contribution margin / operating income = operating leverage factor $262,500 / $52,500 = 5.0

Super Cruiseline offers nightly dinner cruises departing from several cities on the eastern coast of the United States including​Charleston, Baltimore, and Alexandria. Dinner cruise tickets sell for $80 per passenger. Super ​Cruiseline's variable cost of providing the dinner is $40 per ​passenger, and the fixed cost of operating the vessels​(depreciation, salaries, docking​fees, and other​expenses) is $240,000 per month. The ​company's relevant range extends to 17,000 monthly passengers. What is the contribution margin​ ratio?

50% contribution margin per passenger / sales price per passenger = CM ratio $40 / 80 = 50%

Suppose Super Cruiseline decides to offer two types of dinner​ cruises: regular cruises and executive cruises. The executive cruise includes complimentary cocktails and a​ five-course dinner on the upper deck. Assume that fixed expenses remain at $270,000 per month and that the following ticket prices and variable expenses​ apply: Regular Cruise Sales price per ticket $50 Variable expense per passenger 20 Executive Cruise Sales price per ticket $100 Variable expense per passenger 40 Super Cruiseline expects to sell four regular cruises for every one executive cruise. In this​mix, the​ weighted-average contribution margin per cruise is $36. Compute the number of regular cruises and executive cruises the company must sell to breakeven.

6,000 regular cruises must be sold 1,500 executive cruises must be sold

Suppose Super Cruiseline decides to offer two types of dinner​ cruises: regular cruises and executive cruises. The executive cruise includes complimentary cocktails and a​ five-course dinner on the upper deck. Assume that fixed expenses remain at $270,000 per month and that the following ticket prices and variable expenses​ apply: Regular Cruise Sales price per ticket $50 Variable expense per passenger 20 Executive Cruise Sales price per ticket $100 Variable expense per passenger 40 Super Cruiseline expects to sell four regular cruises for every one executive cruise. In this​mix, the​ weighted-average contribution margin per cruise is $36. Compute the total number of dinner cruises that Super Cruiseline must sell to breakeven.

7,500 (fixed expenses + op income) / weighted avg CM per unit = Breakeven units ( $270,000 + $0 ) / $36 = 7,500

Boom! is a specialty popcorn store. It offers two varieties of​popcorn: plain and flavored. The flavors range from Caramel Popcorn to Dark Chocolate Drizzled Popcorn to White Cheddar Popcorn. The plain popcorn sells for $3.40 per box and costs $0.90 per box to make. The flavored popcorn sells for $4.20 per box and costs $3.20 per box to make. Boom! has fixed costs per month of $3,055.Boom! sells 1 box of plain popcorn for every 4 boxes of flavored popcorn. How many boxes of plain popcorn and how many boxes of flavored popcorn must Boom! sell each month to break​even?

Boom! must sell 470 plain boxes and 1,880 flavored boxes to break even ( fixed expenses + op income ) / weighted-avg CM per unit = Breakeven sales in units

The sales level at which Caesars operating income would equal zero is known as​ what?

Breakeven point

The contribution margin ratio is

Contribution margin divided by sales revenue.

Aura Rain Gear sells monogrammed umbrellas on Etsy. Aura Rain Gear is currently selling 500 umbrellas a month at a price of $20 per umbrella. The variable cost of each umbrella sold includes $7 to purchase the merchandise from suppliers and a $4 commission paid to Etsy. Fixed costs are $2,000 per month. The company is considering raising the selling price of each umbrella to $27​, but believes the number of umbrellas sold would drop by 10​% as a result of the price increase. Should Aura Rain Gear raise the selling price of its​umbrellas? calculate Aura Rain​ Gear's operating income if the changes are made.

If the changes are made, Aura Rain Gear's operating income (loss) will be $5,200 Aura Rain Gear should raise the selling price of its umbrellas because its operating income will increase by $2,700

Which of the following is true regarding a company that offers more than one​ product?

The breakeven point is dependent on sales mix assumptions.

Colton Dry Cleaners has determined the following about its​costs: Total variable expenses are $42,000​, total fixed expenses are $30,000, and the sales revenue needed to break even is $50,000. Determine the​company's current​1) sales revenue and​2) operating income. ​(​Hint: First, find the contribution margin​ratio; then prepare the contribution margin income​statement.) Use the contribution margin income statement and the shortcut contribution margin approaches to determine Anderson's current​ (1) sales revenue and​ (2) operating income.

The contribution margin ratio is 60%

A traveling production of Hairspray performs each year. The average show sells 1,300 tickets at $60 per ticket. There are 120 shows each year. The show has a cast of 70​, each earning an average of $330 per show. The cast is paid only after each show. The other variable expense is program printing costs of $9 per guest. Annual fixed expenses total $1,512,000. Use the income statement equation approach to compute the number of shows needed annually to break even.

The number of shows needed annually to break even is 35 sales revenue - variable expenses - fixed expenses = operating income

A traveling production of Hairspray performs each year. The average show sells 1,300 tickets at $60 per ticket. There are 120 shows each year. The show has a cast of 70​, each earning an average of $330 per show. The cast is paid only after each show. The other variable expense is program printing costs of $9 per guest. Annual fixed expenses total $1,512,000. Use the shortcut unit contribution margin approach to compute the number of shows needed annually to earn a profit of $4,579,200. Is this goal​ realistic? Give your reason.

The number of shows needed annually to earn a profit of $4,579,200 is 141 The profit goal of $4,579,200 is unrealistic since Hairspray currently performs 120 shows a year. ( fixed expenses + op income ) / CM per show = target # of shows

Super Cruiseline offers nightly dinner cruises departing from several cities on the eastern coast of the United States including​Charleston, Baltimore, and Alexandria. Dinner cruise tickets sell for $80 per passenger. Super ​Cruiseline's variable cost of providing the dinner is $40 per ​passenger, and the fixed cost of operating the vessels​(depreciation, salaries, docking​fees, and other​expenses) is $240,000 per month. The ​company's relevant range extends to 17,000 monthly passengers. Use the contribution margin ratio to project operating income if monthly sales revenue totals $515,000.

The operating income is $17,500

Super Cruiseline offers nightly dinner cruises departing from several cities on the eastern coast of the United States including​Charleston, Baltimore, and Alexandria. Dinner cruise tickets sell for $80 per passenger. Super ​Cruiseline's variable cost of providing the dinner is $40 per ​passenger, and the fixed cost of operating the vessels​(depreciation, salaries, docking​fees, and other​expenses) is $240,000 per month. The ​company's relevant range extends to 17,000 monthly passengers. Use the unit contribution margin to project operating income if monthly sales total 14,000 passengers.

The operating income is $320,000

Excel Cruiseline offers nightly dinner cruises departing from several cities on the eastern coast of the United States including​Charleston, Baltimore, and Alexandria. Dinner cruise tickets sell for $50 per passenger. Excel ​Cruiseline's variable cost of providing the dinner is $20 per ​passenger, and the fixed cost of operating the vessels​(depreciation, salaries, docking​fees, and other​expenses) is $210,000 per month. The​company's relevant range extends to 14,000 monthly passengers. The breakeven sales are 7,000 tickets sold If volume decreases by 4​%, by what percentage will operating income​ decrease?

The percentage that operating income will decrease is 20%

Excel Cruiseline offers nightly dinner cruises departing from several cities on the eastern coast of the United States including​Charleston, Baltimore, and Alexandria. Dinner cruise tickets sell for $50 per passenger. Excel ​Cruiseline's variable cost of providing the dinner is $20 per ​passenger, and the fixed cost of operating the vessels​(depreciation, salaries, docking​fees, and other​expenses) is $210,000 per month. The​company's relevant range extends to 14,000 monthly passengers. The breakeven sales are 7,000 tickets sold If volume increases by 9​%, by what percentage will operating income​ increase?

The percentage that operating income will increase is 45%

A traveling production of Hairspray performs each year. The average show sells 1,300 tickets at $60 per ticket. There are 120 shows each year. The show has a cast of 70​, each earning an average of $330 per show. The cast is paid only after each show. The other variable expense is program printing costs of $9 per guest. Annual fixed expenses total $1,512,000. Compute revenue and variable expenses for each show.

The revenue for each show is $78,000 The variable expenses for each show are $34,800

For a given level of​ sales, a​ company's operating leverage is defined as

contribution margin​ / operating income

All else being​ equal, a decrease in a​ company's fixed expenses​ will:

decrease the sales needed to break even.

All else being​ equal, if a​ company's variable expenses​ increase,

its contribution margin ratio will decrease.

The contribution margin is

sales revenue minus variable expenses.