Lagoon is an amusement park that offers family-friendly entertainment and attractions. The park boasts more than 25 acres of fun. The admission price to enter the park, which includes access to all attractions, is 35. To earn the required rate ofreturn on investment, Lagoon's target operating income is 35% of total revenues. Lagoon's managers have identified the major activities that drive the cost ofoperating the park. The activity cost pools, the cost driver for each activity, and the cost per unit of the cost driver for each pool are:

Activity

1. Ticket sales and verification

2. Operating attractions

3. Litter patrol

Description of Activity

Selling and verifying tickets for entry into the park

Loading, monitoring, off-loading patrons on attraction

Roaming the park and cleaning up waste as necessary

Cost Driver

Number of tickets sold

Number of runs

Number of litter patrol hours

Cost per Unit of Cost Driver

3.35 per ticket sold

90 per run 20 per hour

The following information describes the existing operations:

1. The average number of patrons per week is 55,000.
2. The total number of runs across all attractions is 11,340 runs each week.
3. It requires 1,750 hours of litter patrol hours to keep the park clean.

In response to competitive pressures and to continue to attract 55,000 patrons per week, Lagoon has decided to lower ticket prices to 33 per patron. To maintain the same level of profits as before, Lagoon is looking to make the following changes to reduce operating costs:

2

1. Reduce the cost of selling and verifying tickets by 0.35 per ticket sold.
2. Reduce the total number of runs across all attractions by 1,000 runs by

reducing the operating hours of some of the attractions that are not very popular.

c. Increase the number of refuse containers in the park at an additional cost of 250 per week. This will decrease the litter patrol hours by 20%.

1. A new carbon tax of 3 per run is proposed to be levied on the energy consumed to operate the attractions. Will Lagoon achieve its target operating income calculated in requirement 1? If not, by how much will Lagoon have to reduce its costs through value engineering to achieve the target operating income calculated in requirement 1(685150)?