Sams old friend Dot is considering setting up a business offering historical boating trips along the River

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Sam’s old friend Dot is considering setting up a business offering ‘historical boating trips’ along the River Thames. Dot thinks that she may be able to make a good living out of this. She has carried out market research and identified that there is a market for boating trips where everything is provided for customers, including someone to pilot the boat. Her anticipated costs are as follows:

* The business would operate for 20 weeks during the summer holiday season, from Wednesdays to Sundays inclusive (that is, 100 days each year).

* Ten second-hand boats would be rented for the summer season at a cost of £5,000. Dot would be responsible for maintaining them.

* Annual maintenance cost would be £100 per boat.

* Shared use of a ticket kiosk and the person to sell tickets would be £3,000 for the summer season.

* There would be two trips offered each day: one in the morning and one in the afternoon. Each would last for three hours.

* The food hampers would be purchased from Gourmet Picnics Ltd for £35 each as they are needed, and the historical guide will cost £12 per book. Each boat will be provided with one hamper and one historical guide.
* The boats will be piloted by boating staff who will be paid £7 an hour to be available and an extra £3 an hour if they are required to work. Assume that ten staff will be available for six hours during each working day.
Other costs include:
* Advertising: £1,250 per annum.
* Mooring costs: £2,600 per annum.
* Uniforms for boating staff: £600 per annum, assuming they need replacing each year.
Required:

a) What are the total fixed costs of this proposed business?

b) What are the variable costs of operating each trip?

c) If trips are charged at £150 for the three hour session, what will be the breakeven number of boating trips? (The charge will be the same regardless of the number of people in the boat, up to a maximum of four).

d) If the business averages 10 trips in total per day (5 in the morning and 5 in the afternoon), what profit (or loss) should the business expect to make?

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Related Book For

Accounting A Smart Approach

ISBN: 9780199587414

1st Edition

Authors: Mary Carey, Jane Towers Clark, Cathy Knowles

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