Question

This are the formulas and breakdown calculations for health cruise case ( example)

Accounting Breakeven Terms Equation: Total revenue = Total costs (expenses) Total revenue = price (P) x volume (v) Total costs = fixed costs + variable costs a. Fixed costs (FC) do not vary with volume b. Variable costs (VC) vary with volume c. Variable costs = variable cost rate (VCR) x volume Difference between price and variable cost rate is defined as the contribution margin (CM)

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Below is the break even expenses info: based on the below expenses can you help to answer the following questions and calculations?

Answer 1

1)
Fixed Costs:
Ship and Crew	$220,000
Initial Advertising	$65,000
Administrative Expenses	$10,000
Total Fixed Costs	$295,000
Variable Costs:
Food, etc. Per Person (200 * $200)	$40,000
Total Variable Costs	$40,000
2-a)
Selling price per person	$1,550
Less: Variable cost per person	($200)
Contribution Margin Per Person (a)	$1,350
Total Fixed Costs (b)	$295,000
Break-even point in number of persons/guests (b/a)	219
3-a)
$6,000 (20 guests):
Current Fixed Costs	$295,000
Add: Additional Fixed Costs	$6,000
Total Fixed Costs (a)	$301,000
Contribution Margin Per Person (b)	$1,350
Break-even point in number of persons/guests (a/b)	223
$15,000 (40 guests):
Current Fixed Costs	$295,000
Add: Additional Fixed Costs	$15,000
Total Fixed Costs (a)	$310,000
Contribution Margin Per Person (b)	$1,350
Break-even point in number of persons/guests (a/b)	230
Therefore, additional fixed costs of $15,000 would give high break-even point of 230 guests compare with $6,000.
4)
Expected profit to achieve (a)	$26,000
Total Fixed Costs (b)	$295,000
Contribution Margin Per Person (c )	$1,350
Passengers required to achieve the target profit of$26,000 [(a + b)/c]	238
Advertising campaign of $6,000 for 20 additional guests is necessary because it will cost less compare with $15,000 advertising campaign with 40 guests.