Murray Cruises provides standard riverboat cruises for tourists on the Murray

River. The average cruise has 80 passengers on board. Each passenger pays $90

for a day's cruising. The riverboat cruises 100 days each year in meeting current

demand. There are 12 crew who are each paid an average of $125 per cruise. The

crew is paid only when the boat sails. Other variable costs are for refreshments,

which average $15 per passenger per cruise, and fuel which averages $350 per

cruise. Total annual fixed costs are $360,000.

REQUIRED

(a) Calculate revenue and variable costs for each cruise.

(b) Calculate the number of cruises needed annually to break even.

(c) Using the contribution margin approach calculate the number of cruises needed

to annually earn $300,000 profit over breakeven. Discuss whether this profit goal

is realistic under current conditions and possible assumptions and limitations of

the "cost / volume / profit model" at such higher volume levels. (word limit 40)

(d) Murray Cruises is considering replacing the existing one day cruises as detailed

above with a one day luxury cruise costing more at $125 per passenger. Under

this new proposal it is estimated that demand will increase requiring the boat to

cruise for 150 days each year with each cruise taking 60 passengers. Other costs

to change from the original offer include refreshments, up from $15 to $25 per

passenger and annual fixed costs to increase from $360,000 to $400,000

annually. All other variable costs remain the same per passenger as per the

standard cruise offer.

(i) Calculate the number of cruises needed annually to break even.

(ii) Given Murray Cruises wants to maximize total yearly profit discuss,

justifying your answer ,whether they should continue with the existing

standard cruise

or replace it with the luxury cruise.

(Please note the

boat has the same useful life / residual value under either the standard

or luxury offer. The boat remains docked at the harbour when not in use

having no alternate use.) Show all workings/ calculations as part of your

answer

(e) Explain to Murray Cruises' management how they would be able to integrate

cost-volume-profit analysis into their broader planning.

As part of your answer,

discuss three ways to increase profit and explain how cost volume profit analysis

is useful in evaluating the different alternatives considered. (150 words limit