Question

Assuming that Luxury Cruiseline expects to sell four reguiar oruises for every axecutive cruise, compute the weighted-average contribution margin per unit is it higher or lower than a simple average contribution margin? (A simple average is calouiated by adding both contribution margins per passenger together and dividing by two.) Why? is it higher or lower than the regular cnuise contributon margin of $407 Why? Wl this new sales mix cause Luxury Cruiseline's breakeven point to increase or decrease from what it was when it only sold regular cruises? Suppose Luxury Cruiseline decides to offer two types of dinner cruises: regular cruises and executive cruises. The executive cruise includes complimentary cocktails and a five-course dinner on the upper deck Assume that fixed expenses remain at $360,000 per month and that the following Scket prices and variable expenses apply (Clck the lcon to view the Sicket prices and expenses)

Answer 1

Computation of weighted average contribution margin
	Regular	Executive	Total
Sale Price per ticket	80	160
Less: Variable expense per passenger	40	80
Contribution margin per ticket	40	80
Sales Mix	4	1	5
Contribution Margin	160	80	240
Weighted average contribution margin			48
A simple average would be (40+80)/2 = $60
Weighted average is lower
sells more regular cruises which have a lower contribution margin
Higher than regular cruise
Executive have higher contribution margin
Higher Weighted average contribution margin
Need to sell fewer cruises to breakeven