Mensa Mountaineering Company (MMC) provides guided mountain climbing expeditions in the Rocky Mountains. Its only major expense is guide salaries; it pays each guide \($4,800\) per climbing expedition. MMC charges its customers \($1,500\) per expedition and expects to take five climbers on each expedition.

1. Base your answers on the preceding information.

Required:

a. Determine the total cost of guide salaries and the cost of guide salaries per climber assuming that four, five, or six climbers are included in a trip. Relative to the number of climbers in a single expedition, is the cost of guides a fixed or a variable cost?

b. Relative to the number of expeditions, is the cost of guides a fixed or a variable cost?

c. Determine the profit of an expedition assuming that five climbers are included in the trip.

d. Determine the profit assuming a 20 percent increase (six climbers total) in expedition revenue. What is the percentage change in profitability?

e. Determine the profit assuming a 20 percent decrease (four climbers total) in expedition revenue. What is the percentage change in profitability?

f. Explain why a 20 percent shift in revenue produces more than a 20 percent shift in profitability. What term describes this phenomenon?
2. Assume that the guides offer to make the climbs for a percentage of expedition fees. Specifically, MMC will pay guides \($960\) per climber on the expedition. Assume also that the expedition fee charged to climbers remains at \($1,500\) per climber.

Required:
g. Determine the total cost of guide salaries and the cost of guide salaries per climber assuming that four, five, or six climbers are included in a trip. Relative to the number of climbers in a single expedition, is the cost of guides a fixed or a variable cost?
h. Relative to the number of expeditions, is the cost of guides a fixed or a variable cost?
i. Determine the profit of an expedition assuming that five climbers are included in the trip.

j. Determine the profit assuming a 20 percent increase (six climbers total) in expedition revenue. What is the percentage change in profitability?
k. Determine the profit assuming a 20 percent decrease (four climbers total) in expedition revenue. What is the percentage change in profitability?
l. Explain why a 20 percent shift in revenue does not produce more than a 20 percent shift in profitability.