Question

Lifetime Escapes generates average revenue of $7 970 per person on its 7-day package tours to wildlife parks in Zimbabwe. The variable costs per person are as follows:

Airfare	$1600
Hotel accommodations	3000
Meals	500
Ground transportation	400
Park tickets and other costs	500
Total	$6000

Annual fixed costs total $400 000.

Required:

1. Calculate the number of package tours that must be sold to break even.
2. Calculate the revenue needed to earn a target profit of $100 000. (1 mark)
3. If fixed costs increase by $19 000, what decrease in variable cost per person must be achieved to maintain the break-even point calculated in requirement 1?
4. The general manager at Lifetime Escapes proposes to increase the price of the package tour to $8500 to decrease the break-even point in units. Using information in the original problem, calculate the new break-even point in units. What factors should the general manager consider before deciding to increase the price of the package tour? (3marks)

question is correct could you please solve ASAP

Answer 1

Answer:

Breakeven

203 Package

1) Breakeven:

Fixed Cost	$400,000
÷ Contribution Margin ($7970 - $6000)	$1970
No of Packages for Breakeven	203 Package

2)

Revenue Needed to' earn target profit of $ 100,000

$ 2,024,380

Explanation:

Fixed Cost + Target Profit ( $ 400,000 + $ $100,000)	$500,000
÷ Contribution Margin	$1970
No of Packages to earn target profit	254 Package

Revenue (254 × $7970)

$ 2,024,380

Req.3

Decrease in variable cost per person must be achieved to maintain the break-even point calculated in requirement 1?

$93.60

Explanation:

1)Fixed cost increases by $19,000, then total variable costs must be reduced by $19,000 to keep the breakeven point of 203 tour packages.

2) Therefore, the variable cost per unit reduction = $19,000 ÷ 203 = $93.60 per tour package

Req.4

New Breakeven Point

160 Package

Explanation:

1) Contribution margin per package = $8,500 − $6,000 = $2,500

2) Breakeven (packages) = Fixed costs ÷ Contribution margin per package

= $400,000 ÷ $2,500 per tour package

=160 tour packages

3)Breakeven point in dollars = $8,500 per package × 160 tour packages = $1,360,000

Factors Need to be considered:

1) Can Lifetime Escapes sell enough packages at $8,500per package to earn more total operating income than when selling packages at $7,970.