Use the following information to complete Short Exercises S20-10 through S20-13. Funday Park competes with Cool World by providing a variety of rides. Funday Park sells tickers at $70 per- person as a one-day entrance fee. Variable costs are $42 per person, and fixed costs are $170,800 per month Applying Sensitivity analysis of changing sales price and variable cost Using the Funday Park information presented, do the following tasks. Requirements Suppose Funday Park cuts its ticket price from $70 to $56 to increase the number of tickets sold. Compute the new breakeven point in tickets and in sales dollars. Ignore the information in Requirement 1. Instead, assume that Funday Park increases the variable cost from $42 to $36 per ticket. Compute the new breakeven point in tickets and in sales dollars.
Cost-Volume-Profit Analysis
Cost Volume Profit (CVP) analysis is a cost accounting method that analyses the effect of fluctuating cost and volume on the operating profit. Also known as break-even analysis, CVP determines the break-even point for varying volumes of sales and cost structures. This information helps the managers make economic decisions on a short-term basis. CVP analysis is based on many assumptions. Sales price, variable costs, and fixed costs per unit are assumed to be constant. The analysis also assumes that all units produced are sold and costs get impacted due to changes in activities. All costs incurred by the company like administrative, manufacturing, and selling costs are identified as either fixed or variable.
Marginal Costing
Marginal cost is defined as the change in the total cost which takes place when one additional unit of a product is manufactured. The marginal cost is influenced only by the variations which generally occur in the variable costs because the fixed costs remain the same irrespective of the output produced. The concept of marginal cost is used for product pricing when the customers want the lowest possible price for a certain number of orders. There is no accounting entry for marginal cost and it is only used by the management for taking effective decisions.
Use the following information to complete Short Exercises S20-10 through S20-13.
Funday Park competes with Cool World by providing a variety of rides. Funday Park sells tickers at $70 per- person as a one-day entrance fee. Variable costs are $42 per person, and fixed costs are $170,800 per month
Applying Sensitivity analysis of changing sales price and variable cost
Using the Funday Park information presented, do the following tasks.
Requirements
- Suppose Funday Park cuts its ticket price from $70 to $56 to increase the number of tickets sold. Compute the new breakeven point in tickets and in sales dollars.
- Ignore the information in Requirement 1. Instead, assume that Funday Park increases the variable cost from $42 to $36 per ticket. Compute the new breakeven point in tickets and in sales dollars.
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