Author Question: The Employee Benefits feature can be accessed from: a. The Company Menu b. The Employee Home Page ... (Read 178 times)

Engineer · **on:** Jul 6, 2018

The Employee Benefits feature can be accessed from:
a. The Company Menu
b. The Employee Home Page
c. The Employees Menu bar
d. a and b
e. b and c

Question 2

CVP analysis, service firm.

Lifetime Escapes generates average revenue of 7,500 per person on its 5-day package tours to wildlife parks in Kenya. The variable costs per person are as follows:

Airfare 1,600
Hotel accommodations 3,100
Meals 600
Ground transportation 300
Park tickets and other costs 700
Total 6,300

Annual fixed costs total 570,000.

Required:
1. Calculate the number of package tours that must be sold to break even.
2. Calculate the revenue needed to earn a target operating income of 102,000.
3. If fixed costs increase by 19,000, what decrease in variable cost per person must be achieved to maintain the breakeven point calculated in requirement 1?
4. The general manager at Lifetime Escapes proposes to increase the price of the package tour to 8,200 to decrease the breakeven point in units. Using information in the original problem, calculate the new breakeven point in units. What factors should the general manager consider before deciding to increase the price of the package tour?

Animal_Goddess · **Reply #1 on:** Jul 6, 2018

Answer to Question 1

e

Answer to Question 2

1. Revenue per package 7,500
Variable cost per package 6,300
Contribution margin per package 1,200

Breakeven (packages) = Fixed costs Contribution margin per package
= = 475 tour packages

2. Contribution margin ratio = = = 16
Revenue to achieve target income = (Fixed costs + target OI) Contribution margin ratio
= = 4,200,000, or
Number of tour packages to earn
102,000 operating income

Revenues to earn 102,000 OI = 560 tour packages 7,500 = 4,200,000.

3. Fixed costs = 570,000 + 19,000 = 589,000
Breakeven (packages) =
Contribution margin per package =
= = 1,240 per tour package
Desired variable cost per tour package = 7,500 1,240 = 6,260
Because the current variable cost per unit is 6,300, the unit variable cost will need to be reduced by 40 (6,300 6,260) to achieve the breakeven point calculated in requirement 1.
Alternate Method: If fixed cost increases by 19,000, then total variable costs must be reduced by 19,000 to keep the breakeven point of 475 tour packages.
Therefore, the variable cost per unit reduction = 19,000 475 = 40 per tour package.
4. Contribution margin per package = 8,200 6,300 = 1,900

Breakeven (packages) = Fixed costs Contribution margin per package
= 570,000 1,900 per tour package = 300 tour packages
Breakeven point in dollars = 8,200 per package 300 tour packages = 2,460,000
The key question for the general manager is: Can Lifetime Escapes sell enough packages at 8,200 per package to earn more total operating income than when selling packages at 7,500. Lowering the breakeven point per se is not the objective.