You are the owner of a parasailing company that is expanding operations to a new beachfront location.You need to prepare a 3-year analysis for the bank that may loan you the funds to purchase your boat and parasailing equipment. Because of your well-established reputation, you already have received requests for "flights" to be scheduled as soon as you open the new location. Therefore, you expect to break-even the first year but must calculate the number of flights needed. You also need to determine the new break-even point in Year 2 if the location allows referrals, which you believe will average about 2% of the sales price overall. Finally, you need to determine the volume needed to have $10,000 in profit in Year 3. The following information is available:

• Sales price per flight $175
• Estimated loan payment per month $350
• Fuel costs per flight $100
• Full-time scheduler salary $2,500 per month
• Boat crew per flight $30
• $500 per month dock fee and use of a small office on a pier

Requirements:

• Calculate the Year 1 break-even quantity, contribution margin, and contribution margin ratio. Explain how the values were determined.
• Calculate the Year 2 break-even quantity, break-even sales, and contribution margin ratio. Explain how the values were determined.
• Determine the number of flights (units) needed to retain a profit of $10,000 in Year 3, assuming the company does allow for referrals.
• Recommend if the bank should issue the loan.

Superior papers will:

• Perform all calculations correctly.
• Articulate the approach to solving the problem.
• Explain the relationship of the costs to the concept of contribution margin.
• Discuss any limitations of the data, including what may be missing.
• Conclude on whether the bank should issue the loan.