Live It Cruiseline offers nightly dinner cruises departing from several cities on the eastern coast of the United States including Charleston, Baltimore, and Alexandria. Dinner cruise tickets sell for $50 per passenger. Live It 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 $270,000 per month. Under these conditions, the breakeven point in tickets is 9,000 and the breakeven point in sales dollars is $450,000. 1. Suppose Live It Cruiseline cuts its dinner cruise ticket price from $50 to $40 to increase the number of passengers. Compute the new breakeven point in units and in sales dollars. Explain how changes in sales price generally affect the breakeven point. 2. Assume that Live It Cruiseline does not cut the price. Live It Cruiseline could reduce its variable costs by no longer serving an appetizer before dinner. Suppose this operating change reduces the variable expense from $20 to $10 per passenger. Compute the new breakeven point in units and in dollars. Explain how changes in variable costs generally affect the breakeven point. 1. Suppose Live It Cruiseline cuts its dinner cruise ticket price from $50 to $40 to increase the number of passengers. Compute the new breakeven point in units and in sales dollars. Explain how changes in sales price generally affect the breakeven point.
Live It Cruiseline offers nightly dinner cruises departing from several cities on the eastern coast of the United States including Charleston, Baltimore, and Alexandria. Dinner cruise tickets sell for $50 per passenger. Live It 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 $270,000 per month. Under these conditions, the breakeven point in tickets is 9,000 and the breakeven point in sales dollars is $450,000. 1. Suppose Live It Cruiseline cuts its dinner cruise ticket price from $50 to $40 to increase the number of passengers. Compute the new breakeven point in units and in sales dollars. Explain how changes in sales price generally affect the breakeven point. 2. Assume that Live It Cruiseline does not cut the price. Live It Cruiseline could reduce its variable costs by no longer serving an appetizer before dinner. Suppose this operating change reduces the variable expense from $20 to $10 per passenger. Compute the new breakeven point in units and in dollars. Explain how changes in variable costs generally affect the breakeven point. 1. Suppose Live It Cruiseline cuts its dinner cruise ticket price from $50 to $40 to increase the number of passengers. Compute the new breakeven point in units and in sales dollars. Explain how changes in sales price generally affect the breakeven point.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:For amounts with a $0 balance, make sure to enter "0" in the appropriate input field. Now compute the breakeven point in sales dollars. Enter the formula, then compute the breakeven sales. (Enter the contribution margin ratio as a whole percent. For amounts with a $0 balance, make sure to enter "0" in the appropriate input field.)
![### Breakeven Analysis for Live It Cruiseline
**Overview:**
Live It Cruiseline offers nightly dinner cruises departing from various cities on the eastern coast of the United States, including Charleston, Baltimore, and Alexandria. Dinner cruise tickets are priced at $50 per passenger. The variable cost for providing the dinner is $20 per passenger, and the fixed monthly cost for operating the vessels (depreciation, salaries, docking fees, and other expenses) is $270,000. Under these conditions, the breakeven point is 9,000 tickets with sales at $450,000.
**Scenario 1: Price Reduction to Increase Passengers**
- **Objective:** Analyze the effects of reducing the ticket price from $50 to $40 to increase passenger numbers.
- **Task:** Compute the new breakeven point in both units and sales dollars, and explain how changes in sales price affect the breakeven point.
**Breakeven Calculation:**
1. **Breakeven Units Calculation:**
Formula:
\[
\text{Breakeven Units} = \frac{\text{Fixed Expenses}}{\text{Contribution Margin per Unit}}
\]
- **Given:**
- Operating income: $0
- Fixed expenses: $270,000
- Contribution margin per unit: $20 (initial scenario)
- **Result:** 13,500 units
2. **Breakeven Sales Calculation:**
Formula:
\[
\text{Breakeven Sales} = \frac{\text{Fixed Expenses}}{\text{Contribution Margin Ratio}}
\]
- **Given:**
- Fixed expenses: $270,000
- Contribution margin ratio: 40%
- **Result:** $675,000
**Graph/Diagram Explanation:**
The illustration shows how to calculate the breakeven point using specific fields in a formula-based table. The inputs for operating income, fixed expenses, contribution margin per unit, and contribution margin ratio are clearly placed.
- **Top Section:** Breakeven in units calculation using fixed expenses divided by contribution margin per unit.
- **Bottom Section:** Breakeven in sales dollars using the contribution margin ratio as a percentage.
This educational example helps learners understand how pricing adjustments and operating costs influence financial planning and decision-making within a business setting.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F0b2b5069-7be4-4685-805b-4c9aba9a78c4%2F12fb8e09-0ad7-4ef9-ba11-1e1f754934e5%2F8y7yjl_processed.png&w=3840&q=75)
Transcribed Image Text:### Breakeven Analysis for Live It Cruiseline
**Overview:**
Live It Cruiseline offers nightly dinner cruises departing from various cities on the eastern coast of the United States, including Charleston, Baltimore, and Alexandria. Dinner cruise tickets are priced at $50 per passenger. The variable cost for providing the dinner is $20 per passenger, and the fixed monthly cost for operating the vessels (depreciation, salaries, docking fees, and other expenses) is $270,000. Under these conditions, the breakeven point is 9,000 tickets with sales at $450,000.
**Scenario 1: Price Reduction to Increase Passengers**
- **Objective:** Analyze the effects of reducing the ticket price from $50 to $40 to increase passenger numbers.
- **Task:** Compute the new breakeven point in both units and sales dollars, and explain how changes in sales price affect the breakeven point.
**Breakeven Calculation:**
1. **Breakeven Units Calculation:**
Formula:
\[
\text{Breakeven Units} = \frac{\text{Fixed Expenses}}{\text{Contribution Margin per Unit}}
\]
- **Given:**
- Operating income: $0
- Fixed expenses: $270,000
- Contribution margin per unit: $20 (initial scenario)
- **Result:** 13,500 units
2. **Breakeven Sales Calculation:**
Formula:
\[
\text{Breakeven Sales} = \frac{\text{Fixed Expenses}}{\text{Contribution Margin Ratio}}
\]
- **Given:**
- Fixed expenses: $270,000
- Contribution margin ratio: 40%
- **Result:** $675,000
**Graph/Diagram Explanation:**
The illustration shows how to calculate the breakeven point using specific fields in a formula-based table. The inputs for operating income, fixed expenses, contribution margin per unit, and contribution margin ratio are clearly placed.
- **Top Section:** Breakeven in units calculation using fixed expenses divided by contribution margin per unit.
- **Bottom Section:** Breakeven in sales dollars using the contribution margin ratio as a percentage.
This educational example helps learners understand how pricing adjustments and operating costs influence financial planning and decision-making within a business setting.
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