Luxury Tours $-$ CVP

You are the consultants for Luxury Tours Corporation. Luxury Tours Corp provides luxury

sightseeing vacation tours in the United States, with its company headquarters located in

Boston. Luxury Tours Corp is planning on expanding their business to provide luxury tours in

France. The alternatives being considered include:

$1)$ Contract with independent contractor that will operate the tours in France for you.

$2)$ Establish an operations center in France to run the tours by the Company$$s own

personnel.

The management team has developed the following information for you to consider:

$$ Although demand is uncertain, it is expected to be for $10$ passengers on each of the $150$

tours being offered for $2023$; Sales are expected to increase by $45\%$ in from year $2023$ to $2024,$

adding an additional $65\%$ increase from year $2024$ to $2025.$ A more moderate growth is

expected in years thereafter.

$$ Tour price is $$2,700$ per person excluding airfare which passengers are responsible for

obtaining on their own

$$ Fixed costs of the Company$$s Boston headquarters for the coming year is estimated

at $$1,000,000$

$$ All tours, regardless of who runs them, will be sold through travel agents who are

paid a $10\%$ commission.

$$ The independent contractor would charge a $$150,000$ annual fixed payment along

with a per passenger fee of $$1,750$

$$ The annual fixed cost to run an operations center in France would be $$1,000,000$ and

the per passenger cost to run the tours would be $$1,500$

$$ The maximum capacity under both alternatives $1$ & $2$ is $10,000$ passengers.

Requirements

Full credit will only be given if Excel functions are used when completing all questions on the

template.

$1)$ Using the excel templated posted for this case, complete The NOI for all three years

assuming outsourcing as well as establishing an operations center in Paris. $($This should

be done individually before class!$)$

$2)$ What would be the annual breakeven level of activity in terms of number of passengers for each

of the $2$ alternatives being considered $($e$.$g$.,$ contract with an independent contractor to run the

tour or establish an operations center in France to run the tours by Company personnel$)?$

$3)$ Calculate the degree of operating leverage for $2024$ and $2025$ under both scenarios.

$4)$ At what volume of passenger activity would the Company be indifferent between the two