Question

Case 2 (Special Order)

While Jurassic World is filled to capacity with tourists most of the year, the theme park experiences a lower number of customers during September and October. This is due to the fact that September and October are “rainy season” in Jurassic World’s location—the island of Isla Nublar, off the coast of Costa Rica.

To celebrate their sponsorship of the Pepsisaurus and the Tostidodon, PepsiCo is interested in holding a 3-day, 2-night corporate retreat for 5,000 of its employees at Jurassic world during September. PepsiCo has told Claire that they would pay Jurassic World $200 per employee. This would provide each employee with three days of park admission, three days of meal and drink vouchers, and two nights of lodging. Additionally, PepsiCo wants Jurassic World to treat its employees to behind-the-scenes tours of the park, which would cost a total of $50,000 to plan and facilitate. Due to the timing of the retreat, Jurassic World has ample capacity to host PepsiCo’s employees.

Claire knows that Jurassic World normally charges $850 per person for a 3-day, 2-night admission, lodging, and meal/drink vacation package. The per person cost for this package is 670, as shown below:

	Per Person
Food and drink	$95
Direct labor	30
Overhead	545

Most of the overhead is the fixed cost of running the theme park, and goes towards marketing, administration, dinosaur bioengineering, customer service, grounds keeping and maintenance, dinosaur food, raptor training, and disaster control. However, $35 is variable with respect to the number of customers in the theme park.

4. Determine the incremental revenue to Jurassic World if Claire accepts PepsiCo’s request. (1 point for the correct answer in the shaded box)

Total incremental revenue=

5. Determine the incremental cost to Jurassic World if Claire accepts PepsiCo’s request. (1 point for the correct answer in the shaded box)

Cost Label	Cost Per Employee	Total Cost
Total incremental cost =

6. Should Claire accept PepsiCo’s offer? Circle One. (1 point for the correct answer)

YES                                     NO

Answer 1

Solution:

Part 4 --- Incremental revenue to Jurassic World if Claire accepts PepsiCo’s request

Total Incremental Revenue if offer is accepted = $1,000,000

Part 5 -- Incremental cost to Jurassic World if Claire accepts PepsiCo’s request.

It is given in the question Jurassic World has ample capacity to host PepsiCo’s employees.

It means the employees can be hosted without incurring any additional fixed overhead.

Since fixed overheads are incurred for a period. For this question the overhead cost is $545 per person which will have continue to incur whether company accept PepsiCO’s offer or not.

Fixed Costs are the cost which will remain same irrespective of activity level. Hence it is irrelevant for the decision making and for calculates of incremental revenue since it will remain same.

The cost which are relevant for calculation of Incremental Revenues are Food and Drink and Direct labor since these costs are variable cost and incur in the future and also it is different under each alternative course of action. It means if company accept offer these costs will incur and if company do not accept offer cost will not incur.

Calculation of Incremental Cost for Jurassic Word Claire accepts PepsiCo’s request

Cost Label	Cost per Employee	Total Cost
Food and Drinks	$95	$475,000 (5000*95)
Direct Labor	$30	$150,000 (5000*30)
Total Incremental Cost		$625,000

Note – Fixed cost is treated as irrelevant hence ignored in the above calculation.

Part 6 – Yes the offer should be accepted since it will increase the profit of the company.

Incremental Revenue (as calculated above)	$1,000,000
Less: Incremental Cost	$625,000
Incremental Profit	$375,000

Hope the above calculations, working and explanations are clear to you and help you in understanding the concept of question.... please rate my answer...in case any doubt, post a comment and I will try to resolve the doubt ASAP…thank you