Simon has recently discovered that his local town has a history which includes tales of murder, mystery and
sightings of ghosts. He plans to start a small business running ‘ghost tour evenings’. Guests would be collected from a local hotel (they do not need to be residents of the hotel but Simon hopes that some of the guests will be interested). They will be taken on a tour of some of the most haunted buildings and then return to the hotel for dinner. Simon has purchased a minibus for ￡15,000 but will need to hire a driver at ￡20 per tour and pay for fuel and parking at ￡13 per tour. He will also pay some friends to appear at various points on the tour which will cost him ￡15 per tour. The hotel has agreed to provide a room for ￡12 per evening and a cooked meal for the tour guests for ￡5 per head.
His friend has budgeted the costs, based on 2 tours per week for 50 weeks and 12 guests (maximum capacity) each time. Insurance includes a variable cost per tour guest. She has also included ￡1,000 for advertising.

Required
1. Identify which costs are purely fixed costs.
2. Identify which costs are purely variable costs depending on the number of tours.
3. The budget shows £3,400 for insurance. This includes £2 variable per guest. Calculate the fixed cost.
4. Simon is pleased with the figures. He is thinking of charging £25 per person per tour. If he operates as per the budget, what will his revenue and profit be?
5. What is the variable cost per guest?
6. What is the variable cost per tour?
7. If Simon achieves the budgeted figures with full capacity and charges £25 per person per tour, what is the
break-even point in number of tours?
8. Simon’s friend is concerned that filling the minibus every time might not happen. She wants to produce another budget based on a 75% capacity. Simon is confident that he will run 100 tours over the year. What will the new total costs be?

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Cost Minibus depreciation Fuel and parking Driver Insurance (including £2 per guest) Advertising Wages for actors Hotel room hire Dinner TOTAL COSTS £ 2,500 1,300 2,000 3,400 1,000 1,500 1,200 6,000 18,900