Study Multiproduct Breakeven Analysis Feb

The expected variable cost to provide the deluxe cruise (which includes the meal and cocktails) is $140 per passenger. The budgeted fixed costs of operating the fleet of diesels are $529,250 per month. PC’s relevant range is up to 12,000 passengers per month. In terms of passengers, presently the company sells 3 basic cruises for every deluxe cruise.

Below is the income statement for June in the contribution margin format: Portsmouth Cruise Lines Contribution Margin Income Statement nun 2014 Revenues Variable costs Contribution margin 569,750 580,275

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Fixed costs Operating income 534,600 45,675 Required: 1 . PC had a profitable month in June as evidenced by the income statement above. Given the 3:1 sales mix (basic:deluxe) and the sales and variable cost information in the opening paragraph, about now many cruises to each did they sell in June to earn the operating income shown on the income statement? Management is looking forward to the upcoming months of July, August and September which are usually their busiest months. They would like to know the following as they plan for the busy summer:

Compute the monthly breakable point in terms of both units and sales dollars for basic and deluxe cruises based on the information in the opening paragraph. Which of the two cruises has the higher contribution margin? Which of the two has the higher contribution margin percentage? Based on the information in the opening paragraph, compute the number of basic and deluxe cruises PC needs to sell to earn an operating income of $232,000 per month which management hopes to hit at the busiest time of the year. Do they have enough capacity to handle the number of passengers?

If the sales mix changed to four basic cruises sold for every two deluxe cruises, compute a new breakable point in terms of units and sales dollars.

Comment on the difference in units and sales dollars needed to breakable from the breakable calculated in requirement two. Southern New Hampshire University – Counterproductive Breakable Case Study Page 2 5. Suppose PC decides to spend an additional $2,500 per month in advertising to generate an additional monthly sales volume of 30 basic cruises and 10 deluxe cruises per month. Prepare an analysis explaining whether this would be desirable. PC management also wants to look at what they can do to prepare for the slower months and improve their bottom line. Management would like for you to describe at least three things PC can do to lower their breakable point.

Prepare your response in accordance with the grading rubric for a short paper/case study, and please show the detail of your calculations used to arrive at your answers. Prepare one Word document with both the narrative and schedules included. I recommend preparing the schedules/calculations in Excel where necessary and pasting them into the body of the paper.