Question

Portsmouth Cruise Lines (PCL) services the greater Portsmouth, New Hampshire area. PCL sells two
types of cruises: basic cruises and deluxe cruises. The basic cruise sells for $125 per passenger. The
expected variable cost of providing the basic cruise (which includes a meal) is $65. The deluxe cruise
which includes complimentary cocktails and a full dinner on the upper deck sells for $250 per passenger.
The expected variable cost to provide the deluxe cruise (which includes the meal and cocktails) is $140
per passenger. The budgeted fixed costs of operating the fleet of vessels are $529,250 per month. PCL’s
relevant range is up to 12,000 passengers per month. In terms of passengers, presently the company
sells 3 basic cruises for every deluxe cruise.
Below is the income statement for June in the contribution margin format:
Portsmouth Cruise Lines
Contribution Margin Income Statement
June 2018
Revenues $ 1,250,025
Variable costs 669,750
Contribution margin $ 580,275
Fixed costs 534,600
Operating income $ 45,675
Required:
1. PCL had a profitable month in June as evidenced by the income statement above. Given the 3:1
sales mix (basic:deluxe) and the sales and variable cost information in the opening paragraph,
about how many cruises of each did they sell in June to earn the operating income shown on the
income statement?

Answer 1

	Basic	Deluxe
	Cruise	Cruise
Selling price per passenger $	125	250
Variable cost	65	140
Contribution margin per passenger $	60	110
Sales Mix (3 : 1)	3	1	4
Total contribution	180	110	290
Weighted average contribution per passenger ($290/4)			72.50

Number of cruises sold = (Fixed costs + Operating income)/ Weighted average contribution margin per passenger = ($534600 + $45675)/$72.50 = $580275/$72.50 = 8003.79 = 8004 cruises

Basic cruises = 8004 x 3/4 = 6003

Deluxe cruises = 8004 x 1/4 = 2001