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