Topic: CVP Analysis

Problem: Blue Water Escape

Blue Water Escape takes tourists on helicopter tours of Boracay. Each tourist buys a P15,000 ticket; the variable costs average P6,000 per person. Blue Water Escape has annual fixed costs of P70,200,000.

Required:

1. How many tours must the company conduct in a month to break even?
2. Compute the sales revenue needed to produce a target net profit of P3,600,000 per month.
3. Calculate the contribution margin ratio.
4. Determine whether the actions that follow will increase, decrease, or not affect the company's break-even point.
   • a. Decrease in tour prices
   • b. Termination of a salaried clerk (no replacement is planned)
   • c. Decrease in the number of tours sold

Problem: Vince's Pizza

Vince's Pizza delivers pizzas to dormitories and apartments near a major state university. The company's annual fixed costs are P4,800,000. The sales price averages P900, and it costs the company P300 to make and deliver each pizza.

Required:

1. How many pizzas must Vince's sell to break even?
2. How many pizzas must the company sell to earn a target net profit of P5,4000,000?
3. If budgeted sales total 9,900 pizzas, how much is the company's safety margin?
4. Vince's assistant manager, an accounting major, has suggested that the firm should try to increase the contribution margin per pizza. Explain the meaning of "contribution margin" in layman's terms.