1. Differentiate between fixed and variable costs. 2. Explain the meaning and significance of the contribution margin. 3. What is a PV ratio? 4. Why should managers be interested in calculating the profit break-even point? 5. Differentiate between the break-even point and the cash break-even point.

Exercise 1: Identifying Fixed and variable Costs and calculating the Contribution Margin and the PV Ratio Answer all 6 questions.

ABC Tours is organizing a 5 day trip to Toronto. For this particular five-day trip, it will cost the ABC Tours the following: Bus and driver $1,500/day Marketing $5,00 (brochure and newspapers) Meals per person/day $5.00 (4 breakfasts) $20.00 (5 dinners) Hotel rooms (night) $120.00 (4 nights) Events/attractions $25.00 (per event for a total of 7 events) Other fixed costs $1,000 Miscellaneous variable costs $100 (per person) Price per client $1,700 Travel guide $500/day Questions With the above information, calculate the following: 1. Total fixed costs 2. Variable costs (per client) 3. Contribution margin (per client) 4. PV ratio 5. The number of clients needed to break-even 6. The number of clients needed if Parkway wants to generate a $5,000 profit