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. 1. Suppose FunTime Cruiseline cuts its dinner cruise ticket price from 50 to 45 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 FunTime Cruiseline does not cut the price. FunTime Cruiseline could reduce its variable costs by no longer serving an appetizer before dinner. Suppose this operating change reduces the variable expense from 30 to 20 per passenger. Compute the new breakeven point in units and in dollars. Explain how changes in variable costs generally affect the breakeven point. All else being constant, a decrease in sales price will decrease the contribution margin per unit and contribution margin ratio. The breakeven point will therefore increase. Assume that FunTime Cruiseline does not cut the price. FunTime Cruiseline could reduce its variable costs by no longer serving an appetizer before dinner. Suppose this operating change reduces the variable expense from 30 to 20 per passenger. Compute the new breakeven point in units and in dollars. Explain how changes in variable costs generally affect the breakeven point.

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. 1. Suppose FunTime Cruiseline cuts its dinner cruise ticket price from 50 to 45 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 FunTime Cruiseline does not cut the price. FunTime Cruiseline could reduce its variable costs by no longer serving an appetizer before dinner. Suppose this operating change reduces the variable expense from 30 to 20 per passenger. Compute the new breakeven point in units and in dollars. Explain how changes in variable costs generally affect the breakeven point. All else being constant, a decrease in sales price will decrease the contribution margin per unit and contribution margin ratio. The breakeven point will therefore increase. Assume that FunTime Cruiseline does not cut the price. FunTime Cruiseline could reduce its variable costs by no longer serving an appetizer before dinner. Suppose this operating change reduces the variable expense from 30 to 20 per passenger. Compute the new breakeven point in units and in dollars. Explain how changes in variable costs generally affect the breakeven point.
Transcript text: 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. 1. Suppose FunTime Cruiseline cuts its dinner cruise ticket price from $50 to $45 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 FunTime Cruiseline does not cut the price. FunTime Cruiseline could reduce its variable costs by no longer serving an appetizer before dinner. Suppose this operating change reduces the variable expense from $30 to $20 per passenger. Compute the new breakeven point in units and in dollars. Explain how changes in variable costs generally affect the breakeven point. All else being constant, a decrease in sales price will decrease the contribution margin per unit and contribution margin ratio. The breakeven point will therefore increase. Assume that FunTime Cruiseline does not cut the price. FunTime Cruiseline could reduce its variable costs by no longer serving an appetizer before dinner. Suppose this operating change reduces the variable expense from $30 to $20 per passenger. Compute the new breakeven point in units and in dollars. Explain how changes in variable costs generally affect the breakeven point.
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Solution

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Solution Steps

Solution Approach

  1. To find the new breakeven point when the ticket price is reduced to $45, calculate the new contribution margin per unit by subtracting the variable cost from the new ticket price. Then, use the breakeven formula: Breakeven Units = Fixed Costs / Contribution Margin per Unit. For breakeven sales dollars, multiply the breakeven units by the new ticket price. Generally, a decrease in sales price reduces the contribution margin, increasing the breakeven point.

  2. To find the new breakeven point when variable costs are reduced to $20, calculate the new contribution margin per unit by subtracting the new variable cost from the ticket price. Use the breakeven formula: Breakeven Units = Fixed Costs / Contribution Margin per Unit. For breakeven sales dollars, multiply the breakeven units by the ticket price. Generally, a decrease in variable costs increases the contribution margin, decreasing the breakeven point.

Step 1: Calculate New Breakeven Point with Reduced Ticket Price

When the ticket price is reduced to \( \$ 45 \), the contribution margin per unit is calculated as follows:

\[ \text{Contribution Margin} = \text{Ticket Price} - \text{Variable Cost} = 45 - 30 = 15 \]

Using the contribution margin, the new breakeven point in units is:

\[ \text{Breakeven Units} = \frac{\text{Fixed Costs}}{\text{Contribution Margin}} = \frac{210000}{15} = 14000 \]

To find the breakeven point in sales dollars:

\[ \text{Breakeven Sales Dollars} = \text{Breakeven Units} \times \text{Ticket Price} = 14000 \times 45 = 630000 \]

Step 2: Calculate New Breakeven Point with Reduced Variable Costs

If the variable cost is reduced to \( \$ 20 \) while keeping the ticket price at \( \$ 50 \), the new contribution margin per unit is:

\[ \text{Contribution Margin} = \text{Ticket Price} - \text{New Variable Cost} = 50 - 20 = 30 \]

The new breakeven point in units is:

\[ \text{Breakeven Units} = \frac{\text{Fixed Costs}}{\text{Contribution Margin}} = \frac{210000}{30} = 7000 \]

To find the breakeven point in sales dollars:

\[ \text{Breakeven Sales Dollars} = \text{Breakeven Units} \times \text{Ticket Price} = 7000 \times 50 = 350000 \]

Final Answer

The new breakeven points are:

  • With reduced ticket price: \( \text{Breakeven Units} = 14000 \), \( \text{Breakeven Sales Dollars} = 630000 \)
  • With reduced variable costs: \( \text{Breakeven Units} = 7000 \), \( \text{Breakeven Sales Dollars} = 350000 \)

Thus, the final answers are: \[ \boxed{14000 \text{ units}, 630000 \text{ dollars}, 7000 \text{ units}, 350000 \text{ dollars}} \]

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