Question $1$

Best Services Hotel $($BSH$)$ established in $1915$ by Adelaide Railway near a National Park on Torrens

River. In an effort to supplement its lodging revenue, the hotel decided in $2012$ to begin manufacturing

and selling small wooden canoes decorated with symbols hand$-$painted by local indigenous Australians.

Due to the great success of the canoes, the hotel began manufacturing and selling paddles as well in

$2015.$ Many hotel guests purchase a canoes and paddles for use in self$-$guided tours of the Torrens.

Because production of the two products began in different years, the canoes and paddles are produced

in separate production facilities and employ different labours. Each canoe sells for $$500$ and each paddle

sells for $$50.$ A$2015$ fire destroyed the hotel$$s accounting records. However, a new system put into

place before the $2016$ season provides the following aggregated data for the hotel$$s canoe and paddle

manufacturing and marketing activities:

Manufacturing Data

Year Number of

Canoes

manufactured

Total Canoe

manufacturing

costs

Year Number of

Paddles

manufactured

Total Paddle

manufacturing

costs

$2016250$ $$1060002016900$ $$38500$

$20152751150002015120049000$

$20142401080002014100042000$

$20133101220002013110045500$

$20123501300002012140056000$

$20114001400002011170066500$

Marketing Data

Year Number of

Canoes sold

Total Canoe

marketing costs

Year Number of

Paddles sold

Total Paddle

marketing costs

$2016250$ $$450002016900$ $$7500$

$201527547500201512009000$

$201424044000201410008000$

$201331051000201311008500$

$2012350550002012140010000$

$2011400600002011170011500$

Required:

$1.$ Use the high$-$low method: $($a$)$ estimate the variable costs per unit and total fixed costs for the Canoe

product line; $($b$)$ estimate the variable costs per unit and total fixed costs for the Paddle product line.

$2.$ Considering the product as single product: $($a$)$ Calculate the break$-$even point in units for the Canoe

product line; $($b$)$ Calculate the break$-$even point in units for the Paddle product line only.

$3.$ The hotel$$s accounting data show an average sales mix of approximately $300$ canoes and $1200$

paddles each season. Significantly more paddles are sold relative to canoes because some

inexperienced canoe guests accidentally break one or more paddles, while other guests purchase

additional paddles as presents for friends and relatives. In addition, BSH spends additional $$30000$

of common fixed costs for a customer service hotline used for both canoe and paddle customers.

Calculate: $($a$)$ combined break$-$even points in units; and $($b$)$ number canoes and paddles need to sell

to reach the break$-$even point. $($c$)$ If both variable cost per unit and total fixed cost of canoe product

line increased by $5\%,$ and sales mix remain unchanged, how many canoes and paddles would need

to be sold to earn a desired profit of $$96000?$

$4.$ Calculate the hotel$$s margin of safety $($both in units and in sales dollars$),$ assuming $($a$)$ same facts

stated above in requirement $3,$ and $($b$)$ BSH sells $700$ canoes and $2500$ paddles in $2017.$

$[$Total $30$ marks$]$