Atlantis Cruise Lines offers luxury, one-week cruise packages in the Greek Aegean Sea. The ship has a
Question:
Atlantis Cruise Lines offers luxury, one-week cruise packages in the Greek Aegean Sea. The ship has a capacity for 1,200 people. Atlantis averages 1,000 passengers per cruise. The price per passenger is $6,000. Costs associated with a cruise are as follows:
Variable costs per cruise:
Crew to serve passengers.................................$1,200,000
Food...........................................................1,500,000
Amenity and excursion.......................................400,000
Total variable cost per cruise.............................$3,100,000
Fixed costs per cruise:
Crew to run ship...........................................$1,500,000
Depreciation expense.........................................120,000
Fuel...............................................................50,000
Total fixed cost per cruise...............................$1,670,000
Atlantis proposes an early booking program to help increase the number of passengers per cruise. Under the proposed early booking program, the first 300 passengers to book a cruise will receive a $1,500 discount off the normal price for the cruise. Atlantis expects this program to increase the number of passengers from 1,000 to 1,180 per cruise. The proposed booking program will be launched with $15,000 of advertising per cruise.
A. Determine the income from operations for a cruise.
B. Determine the variable cost per passenger for each variable cost item.
C. Determine the contribution margin per passenger.
D. Prepare a differential analysis showing the differential income per cruise between the existing plan (Alternative 1) and the proposed early booking program (Alternative 2). Is the new booking program financially acceptable?
Contribution MarginContribution margin is an important element of cost volume profit analysis that managers carry out to assess the maximum number of units that are required to be at the breakeven point. Contribution margin is the profit before fixed cost and taxes...
Step by Step Answer:
Financial And Managerial Accounting
ISBN: 9781337119207
14th Edition
Authors: Carl S. Warren, James M. Reeve, Jonathan Duchac