Concept explainers
a)
Ascertain the operating income from cruise for Company ACL.
a)

Explanation of Solution
Differential Analysis: Differential analysis refers to the analysis of differential revenue that could be gained or differential cost that could be incurred from the available alternative options of business.
Accept Special Offer: Usually the acceptance of special offers by the business aims at utilizing the unused capacity of a business, so that the costs get reduced (as fixed costs are neglected) and additional revenue is generated.
Operating income: Operating income refers to the income generated from the operation of business, or the revenue generated from the services offered by the company.
Calculate the operating income from cruise for Company ACL.
Revenues | $6,000,000 |
Expenses: | |
Crew to serve passengers | $2,700,000 |
Food | $1,500,000 |
Amenity and excursion | $400,000 |
$120,000 | |
Fuel | $50,000 |
Total expense | $4,770,000 |
Income from operations per cruise | $1,230,000 |
Hence, the operating income from cruise for Company ACL is $1,230,000.
b)
Ascertain the variable cost per passenger for each variable item of Company ACL.
b)

Explanation of Solution
Variable cost: Variable cost refers to the costs
Calculate the variable cost per passenger for each variable item of Company ACL.
Variable cost | Activity Cost (a) | Number of Passengers (b) | Variable Cost per passenger (a ÷ b) |
Crew to serve passengers | $1,200,000 | 1000 | $1,200 |
Food | $1,500,000 | 1000 | $1,500 |
Amenity and excursion | $400,000 | 1000 | $400 |
Total | $3,100 |
Table (1)
Hence, the variable cost per passenger for the variable cost items is $3,100.
c)
Ascertain the contribution margin per passenger of Company ACL.
c)

Explanation of Solution
Contribution Margin: Contribution Margin refers to the margin of profit expected by the company. The contribution margin is the difference between the selling price and the cost of the product.
Calculate the contribution margin per passenger of Company ACL.
Ticket price | $6,000 |
Expenses: | |
Crew to serve passengers | $1,200 |
Food | $1,500 |
Amenity and excursion | $400 |
Total variable cost per passenger | $3,100 |
Contribution margin per passenger | $2,900 |
Hence, the contribution margin per passenger of Company ACL is $2,900.
d)
Prepare the differential analysis of Company ACL for the existing plan and the proposed early booking plan.
d)

Explanation of Solution
Prepare the differential analysis of Company ACL, for given alternatives.
Differential Analysis | |||
Existing Plan (Alt. 1) or Early Booking Program (Alt. 2) | |||
Existing Plan (Alternative 1) | Early Booking Program (Alternative 2) | Differential Effect on income | |
Revenues | $6,000,000 | (1) $2,320,000 | $630,000 |
Variable Costs per cruise | |||
Crew to serve passengers | (-) $1,200,000 | (2) (-) $1,416,000 | (-) $216,000 |
Food | (-) $1,500,000 | (3) (-) $1,770,000 | (-) $270,000 |
Amenity and excursion | (-) $400,000 | (4) (-) $472,000 | (-) $72,000 |
Advertising | $0 | (-) $15,000 | (-) $15,000 |
Total | (-) $3,100,000 | (-) $3,673,000 | (-) $573,000 |
Income (loss) | $2,900,000 | $2,957,000 | $57,000 |
Table (2)
Hence, the proposed early booking plan should be accepted as it could generate an additional income of $57,000.
Working Note:
(1) Calculate the Revenue from the proposed plan.
(2) Calculate the cost to serve the crew for the proposed plan.
(3) Calculate the cost of food for the proposed plan.
(4) Calculate the cost amenities and excursion for the proposed plan.
Want to see more full solutions like this?
Chapter 11 Solutions
Bundle: Managerial Accounting, 15th + Cengagenowv2, 1 Term Printed Access Card
- no aiOne company might depreciate a new computer over three years while another company might depreciate the same model computer over five years...and both companies are right. True Falsearrow_forwardno ai An asset's useful life is the same as its physical life? True Falsearrow_forwardno ai Depreciation Expense reflects an allocation of an asset's original cost rather than an allocation based on the economic value that is being consumed. True Falsearrow_forward
- The purpose of depreciation is to have the balance sheet report the current value of an asset. True Falsearrow_forwardDepreciation Expense shown on a company's income statement must be the same amount as the depreciation expense on the company's income tax return. True Falsearrow_forwardDont use AI Give soln.arrow_forward
- Managerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College Pub
