Contribution Margin and Revenue
Question 1: Compute the revenue, variable expense and contribution margin for each cruise. Revenue value: The revenue is determined by multiplying the quantity by the price, in this case the quantity value is equal to the number of tourist.
Therefore Revenue = P*Q. When calculating the revenue where P = $100 and Q = 30 Revenue = $100*30 = $3,000 Revenue =$3,000 Variable expenses value: The variable expenses include: Labor expenses- include 6 experienced university graduates: For each trip 6 are required Each is paid $100 per trip Therefore for each trip the total labor cost is: Labor cost = umber of employed*cost per unit Labor cost = 6*$100 Labor cost = $600 Refreshments: Tourist are offered refreshments, the cost per person is $25 Refreshments cost = $25 Total refreshments cost = cost per unit * number of tourist Number of tourists = 30 Total refreshment cost = $25*30Total refreshment cost = $450 Other operating expenses (including fuel cost) Other expenses =$50 per trip Total expenses = labor expenses + refreshment costs + other operating expenses Total expenses = (6*$100) + ($25*30) + ($50) Total expenses = $600+$450+$50 Total expenses =$1,100 Contribution margin: The differeence between total revenue and total variable expenses is referred to as the contribution margin, in this case given the total number of tourists = 30 Total revenue = $3000 Total variable expenses = $1,100 Contribution margin = 3,000 – 1,100 Contribution margin for each trip is = $1,900From the above calculations the following values were determined: Total revenue = $3,000 Total variable expenses = $1,100 Contribution margin = $1,900 This means that given the average number of tourists per cruise was 30, the revenue per cruise was $3,000. Also given the same number of tourists the variable expenses per cruise was $1,100 and given these two values the contribution margin was $1,900 per cruise.