Question

Question 2

 

Wildlife Escapes Sdn Bhd generates average revenue of RM9,200 per person on its five-day package tours to wildlife parks in Africa. The variable costs per person are:

 

	RM
Airfare   Hotel accommodations   Meals	3,500   1,200   480
Ground   transportation	920
Park tickets   and other costs	240

 

Annual fixed costs total RM1,287,000.

 

Required:

 

a)	Calculate the number of package   tours and sales value that must be sold to break even.
		(2 marks)
b)	Calculate   variable cost ratio and contribution margin ratio.
		(2 marks)
c)	Calculate the unit   and sales revenue needed to earn a target profit of RM214,500.
		(2 marks)
d)	Based on (b)   calculate margin of safety in units, in sales value and percentage. (Round your answer to two decimal places)
		(3 marks)
e)	If fixed costs increase by RM40,500, what will be amount of variable   costs per unit must be achieved to maintain the breakeven point as calculated   in requirement (a)?
		(4 marks)
f)	Based on information   in (b), marketing manager propose that company can increase revenues by 30%   by investing on additional advertising costs of RM130,000.   Required:
	i)	Prepare current and   revised contribution margin income statement.
		(4 marks)
	ii)	Calculate the percentage change in operating income and comment the   impact of revenues on this action.
		(4 marks)
	iii)	Calculate the current   and revised degree operating leverage (DOL). Compare and comment on your   findings.
		(6 marks)
	iv)	Should management   accept the manager’s proposal? Why.
		(3 marks)

 

(30 Marks)