Question
In: Accounting
Company is evaluating its ticket price. It is open during the summer months for 15 weeks....
Company is evaluating its ticket price. It is open during the summer months for 15 weeks. The following information pertains to last year’s tourist season. Costs are expected to remain the same for this year.
Average tourists per day on Friday through Tuesday 2,000
Average tourists per day on Wednesday and Thursday 500
Variable operating costs per day when open $ 3,280
Fixed overhead costs per year $144,000
Marketing costs per year $50,000
Customer service costs per year $6,100
- What is the total expected attendance over the 15 week period the company is open?
- What is the minimum long-run price for each tour ticket?
- Studies have shown that Wednesdays and Thursdays have the fewest tourists. The director wants to increase the attendance on these days to an average of 1,000 tourists. One suggestion the director has received is to lower ticket prices. A special promotion for the discount days will cost $4,200. What minimum ticket price should be charged for the off-peak days?
Solutions
Expert Solution
a) Total Expected Attendance in a weeks :-
| Particulars | Attendance |
| Attendance Friday through Tuesday in a week (2000*5) | 10000 |
| Attendance Wednesday and Thursday in a week (500*2) | 1000 |
| Total Expected Attendance in Week | 11000 |
| Total Expected Attendance in 15 weeks (11000*15) | 165000 |
b) Minimum long run Price :-
= Total Cost / Total Expected Attendance
= $544500 / 165000
= $3.3 per tour ticket
Total Cost :-
| Particulars | Amount($) |
| Variable Operating Costs (15*7*$3280) | 344400 |
| Fixed Operating Costs | 144000 |
| Marketing Costs | 50000 |
| Costumer Service Costs | 6100 |
| Total Cost | 544500 |
c) Total Change in Attendance in off peak days :-
= No. Days in off peak * Change in Attendance per day
= 2 * 500
= 1000
Total Change in Attendance in 15 week's off peak days = 1000*15 = 15000
Special Promotion cost = $4200
Change in Minimum Ticket Price = Special Promotion Cost / Change in Attendance in 15 week
= $4200 / 15000
= $0.28
In off peak days cost per ticket will be increased by $0.28.
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