Question

Question 6. Executive Cruiseline offers nightly dinner cruises off the coast of Nanaimo and Victoria. Dinner Cruise tickets sell for $60 per passenger. Executive Cruiseline's variable cost of providing the dinner is $20 per passenger, and the fixed cost of operating the vessels (depreciation, salaries, docking fees, and other expenses) is $210,000 per month. The company's relevant range extends to 15,000 monthly passengers. The break-even units are 5,250 tickets sold. Executive Cruiseline expects to sell 10,000 dinner cruises. A. Compute the margin of safety in dollars. 2 points B. Compute the operating leverage factor if Executive Cruiseline sells 10,000 dinner cruises. 3 points C. If volume decreases by 7%, by how much will operating income change? Will operating income increase or decrease? 2 points

Answer 1

Iu come Statement Sales/ Revenue (10000 X 460) (ess: variable cast (10000 x 200 Ашош Е 8 6ooooo 8 200000 Contribution (10000 x 40) $ 40,000.00 Less: fixed cost $2,10,000 Prosit | margin of Salety FBCT A) Margin of Safety & & 1,90,000. - Contribution - fixed cost - margin of Safety (int) Margin of Safety & $4,000,000 - 49, 16,000 - 7190000 B) Operating leverage - Contribution & 4,00,000 EBIT 1900.00 10 ft volume decreare by 41, unit become 9900 unit Contribution become (9300 x 408) 8 372000 less! fired Cost operatin, lu come 8162000 operating Lucome will fall/ decrease from & 190000 to $ 162000