Wildlife Escapes Sdn Bhd generates average revenue of RM9,200 per person on its five-day package tours to wildlife parks in Africa. The variable costs per person are:

	RM
Airfare Hotel accommodations Meals	3,500 1,200 480
Ground transportation	920
Park tickets and other costs	240

Annual fixed costs total RM1,287,000.

Required:

a)	Calculate the number of package tours and sales value that must be sold to break even.
		(2 marks)
b)	Calculate variable cost ratio and contribution margin ratio.
		(2 marks)
c)	Calculate the unit and sales revenue needed to earn a target profit of RM214,500.
		(2 marks)
d)	Based on (b) calculate the margin of safety in units, in sales value, and percentage. (Round your answer to two decimal places)
		(3 marks)
e)	If fixed costs increase by RM40,500, what will be the number of variable costs per unit that must be achieved to maintain the breakeven point as calculated in requirement (a)?
		(4 marks)
f)	Based on information in (b), the marketing manager proposes that the company can increase revenues by 30% by investing on additional advertising costs of RM130,000. Required:
	i)	Prepare current and revised contribution margin income statement.
		(4 marks)
	ii)	Calculate the percentage change in operating income and comment on the impact of revenues on this action.
		(4 marks)
	iii)	Calculate the current and revised degree of operating leverage (DOL). Compare and comment on your findings.
		(6 marks)
	iv)	Should management accept the manager’s proposal? Why.
		(3 marks)

Answer rating: 100% (QA)

Breakeven Number of Package Tours Variable Cost Ratio Breakeven Sales V... View the full answer