Sleeping With The Fishes

Assume each month has four weeks. Ignore all taxes.

Luca Brazi owns a fishing boat charter business he calls Sleeping With the Fishes. He runs charters 4 mornings per week, three weeks per month. Luca charges $300 per person for his charters. The boat can hold up to 12 passengers, but on average he goes out each morning with eight passengers. Groups can charter the entire boat for $3,000.

Luca bought the boat two years ago for $130,000. He expects that he will be able to run charters on the boat for a total of ten years. His daughter has offered to buy the boat for $10,000 when he upgrades to a new one when this boat is ten years old.

For each charter, Luca hires a crew of two at a rate of $150/day each. The boat uses approximately 80 gallons of gas for each tour. Luca currently pays $4.15/gallon at the marina. Luca feeds his crew and guests (including himself) a lunch that costs $12 per person. Because he often doesnt know how many passengers will be on a group tour, Luca purchases lunch for 12 passengers for group tours. Luca carries insurance that costs $6,000/year. His business license costs $624/year and the marina slip where he keeps his boat costs $2,000/month. Luca buys advertising space in various magazines for a total of $600 per quarter. Luca generally books three groups per month. All other charters include passengers who have booked individually.

Stop here and complete Parts 1 and 2

During his seagoing travels, Luca has stumbled upon an island in the North Atlantic this is rumored to have a buried treasure. He would like to spend more time looking for this treasure, but doesnt want to quit his business altogether, you know, in case there is no treasure.

Luca is wondering what is the minimum number of charters hed have to run per month to cover all of his costs (including any non cash expenses). He assumes he cannot change his product mix of 9 individually booked charters for every 3 group charters.

Stop here and complete Part 3

Investment Options

Luca has noticed an increased interest in shark fishing. But to offer shark fishing charters, hes going to need a bigger boat. Luca estimates that he could fill a 20 passenger boat 12 days per month without offering any group discounts. The bigger boat would cost $1,500,000. Luca estimates he can use the boat in his business for 15 years and can sell the boat for $40,000 at the end of those 15 years. Luca would need to buy 150 gallons of fuel per charter. He could charge $500 per passenger. His food costs per person would remain unchanged. He would need to increase his insurance coverage, which would cost an additional $1,200/year and would need to hire an additional deckhand for each trip (remember the additional deckhand wants to eat lunch too). He would need a new advertising strategy, which he believes would cost $4,500/year (he would discontinue buying space in magazines).

While Luca loves the idea of running a shark fishing charter, his husband, Clemenza, is sick of Luca coming home smelling like fish. Clemenza has suggested that Luca convert his existing boat to a whale watching boat. With this investment option, Luca believes he could sell out all 12 seats for all 12 charters per month. He will charge each passenger $400. He could run the whale watching operation with his existing two crew and maintain the same gas usage, insurance, and per person cost for lunch. To equip the existing boat for whale watching, Luca would need to purchase and install a sonar and underwater camera system. He estimates this new system would cost $125,000 and could be used to generate income for 5 years, at which point it would be worth nothing.

Luca would continue advertising in magazines for $600/quarter.

Under either investment option, Lucas costs for his business license and marina slip would not change.

Luca wishes to earn at least 8% on either investment. Otherwise, hell just stick with his current business model of running fishing charters.

PLEASE ANSWER QUESTIONS 1-5

Given Luca's current product mix of 9 individually booked charters and 3 group charters per month, calculate the composite unit sales. Use whole dollars only. Question 2 Given Luca's current product mix of 9 individually booked charters and 3 group charters per month, calculate the composite unit variable cost. Use whole dollars only. What is the Contribution Margin per Composite Unit? \begin{tabular}{c} 21,288 \\ \hline 14,724 \\ \hline 2,188 \\ \hline 3,824 \end{tabular} Question 4 2 pts What is the number of composite units necessary to break even (partial units are okay)? \begin{tabular}{l} .17625 \\ \hline 0.998 \\ \hline 6.742 \\ \hline 3.858 \end{tabular} What is the minimum number of charters that Luca must run each month in order to cover all of his costs? 3 2.11 2 4