Questions: FunTime Cruiseline offers nightly dinner cruises departing from several cities on the East Coast of the United States including Charleston, Baltimore, and Alexandria. Dinner cruise tickets sell for 50 per passenger. FunTime Cruiseline's variable cost of providing the dinner is 30 per passenger, and the fixed cost of operating the vessels (depreciation, salaries, docking fees, and other expenses) is 210,000 per month. Under these conditions, the breakeven point in tickets is 10,500 and the breakeven point in sales dollars is 525,000. Suppose FunTime Cruiseline embarks on a cost reduction drive and slashes fixed expenses from 210,000 per month to 150,000 per month. Compute the new breakeven point in units and in sales dollars. Begin with the breakeven point units. Enter the formula, then compute the breakeven point. (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 point. (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)

Solution Steps

To compute the new breakeven point in units and in sales dollars, we need to follow these steps:

1. Calculate the contribution margin per unit, which is the selling price per unit minus the variable cost per unit.
2. Compute the new breakeven point in units by dividing the new fixed costs by the contribution margin per unit.
3. Calculate the contribution margin ratio, which is the contribution margin per unit divided by the selling price per unit.
4. Compute the new breakeven point in sales dollars by dividing the new fixed costs by the contribution margin ratio.

The contribution margin per unit is calculated as follows: \[ \text{Contribution Margin per Unit} = \text{Selling Price per Unit} - \text{Variable Cost per Unit} = 50 - 30 = 20 \]

The new breakeven point in units is determined by dividing the new fixed costs by the contribution margin per unit: \[ \text{Breakeven Point in Units} = \frac{\text{New Fixed Costs}}{\text{Contribution Margin per Unit}} = \frac{150000}{20} = 7500 \]

The contribution margin ratio is calculated as follows: \[ \text{Contribution Margin Ratio} = \frac{\text{Contribution Margin per Unit}}{\text{Selling Price per Unit}} = \frac{20}{50} = 0.4 \]

The new breakeven point in sales dollars is calculated by dividing the new fixed costs by the contribution margin ratio: \[ \text{Breakeven Point in Sales Dollars} = \frac{\text{New Fixed Costs}}{\text{Contribution Margin Ratio}} = \frac{150000}{0.4} = 375000 \]

Final Answer