Chapter9-Pricing-Health Cruises Case Questions

Directions: Read the Health Cruises case and submit answers to the following questions through the Turnitin link.Only submit this question page, along with your answers, showing your calculations(not the instruction page that preceded this page).

1. What is the minimum number of passengers Health Cruises must sign up by November 20th to break even?[show yourBreak Evencalculations]

• Average cabin cost = $1900 and the weekly cost per passenger is $225.The profit from each ticket is $1900 - $225 = $1675. Theinitialexpenseis $401,000. Because of this the minimum number of passengers Health Cruises need to get by November 20th to break even is239. (401,000 / 1675 = 239.4and round it down to 239)

1. Should Health Cruises go ahead with the cruise since 200 people have signed up by November 14th?Why or why not?

• I think the cruise should go with 200 people because italready spent the initial capital amount. If it doesn't go, the total initial capital would become a total lossof $401,000. The cruisewill make $335,00 (200 x 1675) if they decide to sailwith 200 people.So, the loss they would incur if no more passengers show up is $66,000 rather than $401,000.

Several options / ideas were discussed. Consider each of the following three ideas independently of each other.

1. The advertising agency has proposed two alternative campaigns to help fill the boat(as listed in the directions).Whichone of these campaignswould you suggest? [again, show yourBreak-Evencalculations(in # of passengers)and how you came up with your decision].

• For the $6000 option, the total number of passengers would be 220 and the potential profit is$368,500 which is a $33,500 increase.However, the company is still making a loss of$38,500(220 x 1675) -(401,000 + 6000).
• For the 15,000 option, the total number of passengers would be 250 and the potential profit is $418,750. The costof this will be 416,000(401,000 + 15000). The net income of the company would be $2750 because $418,750 -$416,000.
• Based on the calculation, I think they should go for ambitious campaign because it will bring a positive profit although it costs more money.

1. Some board members suggested discounting the remaining cabins and runninga pricepromotion.

• Should Health Cruises consider running adiscountedprice promotion for remaining cabins?

1. I think Health Cruises should have a discount price promotion to attract more people and fill in the space.

• Why or why not?

1. Based on the calculation from the above question, even spending $15,000 to get 50 more people did not bring that much profit to the company. By applying the price discount, the cruises might earn a profit greater than $418,750

• What other factors could impact the go/no-go decision in addition to thebreakeven?

1. In order to increase the ticket sale, Health Cruises

1. Starting with the next cruise, Health Cruises has been approached by the On-a-Whim Agency to act as travel agent and representative in booking the Health Cruise. On-a-Whim requires aselling commissionof 20% of the cruise price.Health Cruises fixedand variablecosts will remain the same due to on-going expenses and advertising.

1. How muchrevenue would Health Cruises receive from each customer?

[Hint - You must factor in the On-a-Whimcommission.

1. What is the new break even [show yourBreak-Evencalculationsin # of passengers]?

1. Would you recommend that Health Cruises hire On-a-Whim and why or why not?

Jan. 3, 2020 version