Required Assignment - Chapter 19 ANALYSIS FOR DECISION MAKING: ADM #1 page 991-992 ADM-1 A Total fixed costs per cruise: Total fixed costs per cruise Total variable costs per passenger: Total variable costs per passenger Break-Even Sales (units) B. Calculate the amount of profit or loss, if 900 passengers book the cruise. Show your calculation (required): C. Calculate the amount of profit or loss, if the cruise was booked to capacity. Show your calculation (required): D. If the cruise is operating under break-even, name at least three actions the cruise line can take to improve the financial performance of the cruise. Detailed valid responses are required: Chapter 19 Cow Volume Prolt Analysis 991 PR 19-60 Contribution margin, break even sales, cost-volume profit chart, Obj 2, 3, 4, 5 margin of safety, and operating leverage 3.16,000 units Belmin C expects to maintain the same inventories at the end of 2017 as at the beginning of the year. The total of all production costs for the year is therefore assumed to be equal to the cost of goods sold with this in mind, the various department heads were asked to sub mit estimates of the costs for their departments during the year. A summary report of these DIE TIMATE estimates is as follow Estimated Estimated Variable Cout Fixed cost per un sold) Production costs Direct materials $50.00 Direct labor 30.00 Factory overhead $ 350,000 6.00 Selling expenses Sales salaries and commission 340,000 4.00 Advertising 116.000 Travel 4.000 Miscellaneous selling expense 2.300 1.00 Administrative expenses Office and officers'salaries 325.000 Supplies 6,000 400 Miscellaneous administrative expense 8.700 1.00 Total $1.152,000 $96.00 It is expected that 12.000 units will be sold at a price of $240 a unit Maximum sales within the relevant range are 18,000 units Instructions 1. Prepare an estimated income statement for 2017 2. What is the expected contribution margin ratio? 3. Determine the break even sales in units and dollars 4. Construct a cost volume profit chart indicating the break even sales. 5. What is the expected margin of safety in dollars and as a percentage of sales? (Round to one decimal place) 6 Determine the operating leverage Analysis for Decision Making ADM-1 Break-even number of passengers for a cruise Ocean Escape Cruise Lines has a boat with a capacity of 1,200 passengers. An eight-day ocean cruise involves the following costs: Crew 5240,000 Fuel 60.000 Fixed operating costs 800,000 The variable costs per passenger for the eight-day cruise include the following: Meals $900 Variable operating costs 400 (Continued) 992 Chapter 19 Cost-Volume-Profit Analysis The price of the cruise is $2,400 per passenger A. Determine the break-even number of passengers for the eight-day cruise. B. Assume 900 passengers booked the cruise. What would be the profit or loss for the cruise? C. Assume the cruise was booked to capacity. What would be the profit or loss for the cruise? If the cruise cannot book enough passengers to break even, how might the cruise line respond? D ADM-2 Break-even subscribers for a video service Star Stream is a subscription-based video streaming service. Subscribers pay $120 per year for the service. Star Stream licenses and develops content for its subscribers. In addition, Star Stream leases servers to hold this content. These costs are not variable to the number of subscribers, but must be incurred regardless of the subscriber base. In addition, Star Stream compensates telecommunication companies for bandwidth so that Star Stream customers receive fast streaming services. These costs are variable to the number of subscribers. These and other costs are as follows: Server lease costs per year $ 100,000,000 Content costs per year 2,000,000,000 Fixed operating costs per year 900,000,000 Bandwidth costs per subscriber per year 15 Variable operating costs per subscriber per year 25 A. Determine the break-even number of subscribers B. Assume Star Stream planned to increase available programming and thus increase the annual content costs to $2,600,000,000. What impact would this change have on the break-even number of subscribers? C. Assume the same content cost scenario in (B). How much would the annual subscription need to change in order to maintain the same break-even as in (A)? 30 16 ADM-3 Break-even number of guests for a theme park Musicland Theme Park has an average daily admission price of $60 per guest. The following financial data are available for analysis: Daily operating fixed costs $750,000 Variable daily operating cost per guest 24 Average daily concession revenue per guest Average daily variable cost of concession Items per guest Additional operating data indicate that the park averages 24,000 daily guests during the week- days and 40,000 average daily guests on Saturdays and Sundays. A. Determine the break-even number of guests per day at the theme park. B. How much profit does MusicLand earn on an average weekday? C. How much profit does MusicLand earn on an average weekend day? D. Determine the revised break even if the daily fixed costs increased to $1,000,000 E. Would the theme park still remain profitable for an average weekday under the scenario in (D)