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Problem-13-27: Target service costs, value engineering, and activity-based costing. Lagoon is an amusement park that offers family-friendly entertainment and attractions. The park boasts more than

Problem-13-27: Target service costs, value engineering, and activity-based costing. 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. At this entrance price, Lagoons target profit is 35% of revenues. Lagoons managers have identified the major activities that drive the cost of operating 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 Description of Activity Cost Driver Cost per Unit

Of Cost Driver

Ticket salesSelling tickets on-site for entryNumber of tickets$2 per ticket sold

Into the park sold on-site

Ticket verification Verifying tickets purchased atNumber of patroons $1.50 perpatron

Park and online ticket purchase

< >

Litter patrolRoaming the park and cleaning upNumber of litter$20 per hour

Waste as necessary patrol hours

The following additional information describes the existing operations:

The park operating information hours are 10:00 a.m.-8:00p.m., 7 days a week.The average number of patrons per week is 55,000.

Lagoon maintains an online Web site for advance ticket purchases.This site is maintained by an outside company that charges $1 per ticket sold.Only 15% of the tickets are purchased online.

Once the ticket is purchased, another park employee checks the ticket and stamps the patron for potential exit and reentry.

The park has 27 attractions.A run is the complete cycle of loading, monitoring, and off-loading of patrons. On average, the attractions can make 6 runs an hour.The cost of operating the attractions includes wages of operator, maintenance, and depreciation of equipment.

Cleaning crew members are assigned to 1-acre areas.One person can cover approximately 1 acre per hour.Each acre is covered continuously.The cost of litter patrol includes the wages of the employee and cleaning supplies.

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 improvements to reduce operating costs:

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