Question
Murray Ltd is a company offering corporate packages to major tennis events. The company is examining the viability of organising a trip to the US
Murray Ltd is a company offering corporate packages to major tennis events. The company is examining the viability of organising a trip to the US open tournament in New York in 20X3. Estimated fixed costs are 30,000 and this includes advertising in tennis magazines and fees paid for the hire of a private marquee at the venue. Variable costs consist of the following: Return flight to the USA at 600 per person Entry cost for the event 200 per person Accommodation at 250 per person Lunch and tea provided in the marquee at the course 50 per person The proposed price for the sale of a ticket for 1 person is 1,500. The company decides not to employ the retired tennis player and has established that at a selling price of 1,500 and with the level of advertising currently planned the expected sales would be 90 tickets. One of the managers has suggested that if the selling price per ticket was reduced to 1,450, then the sales would increase to 110 tickets. To guarantee these extra sales additional magazine advertising expenditure of 1,490 would be needed and each client would receive a gift box of tennis ball all with the US Open logo on them which would cost the company 15 per box. For this new strategy you are to calculate: (i) The break-even point in units only (ii) The margin of safety in units only (iii) The forecast profit (h) Explain briefly if you would recommend the managers suggestion be implemented? (i) Discuss the types of decisions that require knowledge of how costs and revenues vary with different levels of activity.
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