Case: BEP & CVP

(1) A local authority, whose area includes a holiday resort situated on the east coast, operates, for 30 weeks each year, a holiday home which is let to visiting parties of children in care from other authorities. The children are accompanied by their own house mothers who supervise them throughout their holiday. From six to fifteen guests are accepted on terms of 100 per person per week. No differential charges exist for adults and children. Weekly

costs incurred by the host authority are:

Items ( per guest)

Food 25

Electricity for heating and cooking 3

Domestic (laundry, cleaning etc.) expenses5

Use of minibus 10

Seasonal staff supervise and carry out the necessary duties at the home at a cost of 11000 for the 30-week period. This provides staffing sufficient for six to ten guests per week but if eleven or more guests are to be accommodated, additional staff at a total cost of 200 per week are engaged for the whole of the 30-week period. Rent, including rates for the property, is 4000 per annum and the garden of the home is maintained by the council's recreation department which charges a nominal fee of 1000 per annum. You are required to:

(i) tabulate the appropriate figures in such a way as to show the break-even point(s) and to

comment on your figures; (8 marks)

(ii) draw, on graph paper, a chart to illustrate your answer to (b)(i) above.)

(2) Finsburry Logistics Inc. can render three different types of services: Standard Delivery, Special Delivery & Urgent Delivery using the same staff.

Various estimates for next year have been made as follows:

ServiceStandardSpecialUrgent

DeliveryDeliveryDelivery

( per unit)( per unit)( per unit)

Selling Price303920

Variable material costs151810

Other variable costs6105

Share of fixed costs8124

Staff time required (hours)231

Note: The fixed costs for the next year are expected to be 40,000 in total.

Requirements (consider all the requirements as separate and independent of each other):

(a)If Finsburry were to provide only the Standard Delivery service next year, how many units of the Standard Deliveries would it need to provide in order to break even?

(b)If Finsburry has a maximum of 10,000 staff hours next year, in which order of preference would you recommend the three services come?

(c)If the maximum market for next year for the three services is as follows:

Standard Delivery: 3,000 units

Special Delivery:2,000 units

Urgent Delivery: 5,000 units

what quantities of which service should the business provide next year and how much profit would this be expected to yield?

Demonstrate notes and calculations for all of your answers.