Exercise 13-30 (Algo) Target Costing in a Service Firm [LO 13-1]

Take-a-Break Travel Company offers spring break travel packages to college students. Two of its packages, a 7-day, 6-night trip to Cancun and a 5-day, 4-night trip to Jamaica, have the following characteristics:

Package Specifications	Cancun	Jamaica	Cost Data
Oceanfront room; number of nights	6	4	$61	/night
Meals:
Breakfasts	6	4	$10	/ea
Lunches	7	5	$15	/ea
Dinners	6	4	$25	/ea
Scuba diving trips	3	2	$81	/ea
Water skiing trips	4	2	$56	/ea
Airfare (round trip from Miami)	1	1	$300	(Cancun),
			$525	(Jamaica)
Transportation to and from airport	1	1	$40	(Cancun),
			$38	(Jamaica)

The Cancun trip sells for $1,860, and the Jamaica trip sells for $1,620, and both packages allow two bags to be checked for free.

Required:

1. What are the current profit margins on both trips?

2. Take-a-Breaks management believes that it must drop the price of each trip by $106 in order to remain competitive in the market. Recalculate profit margins for both packages at these price levels.