Question 1: CVP analysis, service firm. Lifetime Escapes generates average revenue of $5,000 per person on its one-day package tours to wildlife parks in Kenya. The variable costs per person are as follows:
Airfare $1,400
Hotel accommodations 1,100
Meals 300
Ground transportation 100
Park tickets and other costs 800
Total $3,700
Annual fixed costs total $520,000
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 $91,000.
3. if fixed costs increase by $32,000, what decrease in variable cost per person must be achieved to maintain the breakeven point calculated in requirement 1?
Question 2: CVP, target , operating income, service firm. Snow leaopard daycare provides daycare for children Mondays through fridays. its monthly variable costs per child are as follows:
Lunch and snacks $150
Educational supplies 60
Other supplies (paper products, toiletries, etc.) 20
Total $230
Monthly fixed costs consist of the following:
Rent $2,150
Utilities 200
Insurance 250
Salaries 2,350
Miscellaneous 650
Total $5,600
Snow Leopard charges each parent $580 per child.
1. Calculate the breakeven point.
2. Snow Leopard's target operating income is $10,500 per month. Compute the number of children who must be enrolled to achieve the terget operating income.
3. Snow Leopard lost its lease and had to move to another building. Monthly rent for the new building is $3,150. At the suggestion of parents, Snow Leapard plans to take children on field trips. Monthly costs of the field trips are $1300. By how much should Snow Leopard increase fees per child to meet the target operating income of $10,500 per month, assuming the same number of children as in requirement 2?
Question 3: CVP analysis, margin of safely. (CMA, adapted) Technology Solutions sells a ready-to-use software product for small businesses. The current selling price is $300. Projected operating income for 2011 is $490,000 based on a sales volime of 10,000 units.
Variable costs of producing the software are $120 per unit sold plus an additional cost of $5 per unit for shipping and handling. Technology Solutions annual fixed costs are $1,260,000.
1. Calculate Technology Solutions breakeven point and margin of safety in units.
2. Calculate the company's operating income for 2011 if there is a 10% increase in unit sales.
3. For 2012, management expects that the per unit production cost of the software will increase by 30%, but the shipping and handling costs per unit will decrease by 20%. Calculate the sales revenue Technology Solutions must generate for 2012 to maintain the current year's operating income if the sell¬ing price remains unchanged, assuming all other data as in the original problem.