Question

Rumba Dance Hall is considering offering a wedding reception package that includes the ballroom rental, decorations, a wedding cake, punch, and paper goods for $6,000. Currently, the company is renting the ballroom with no extras at $4,500. The extras will cost $800. Determine if the new package is profitable and by how much.

A. Cannot be determined from the information given.
B. Increases profits by $700.
C. Increases profits by $800.
D. Decreases profits by $800.

Answer 1

B) Increases profits by $700.

Step-by-step explanation:

We must perform an incremental analysis of the costs and revenues generated by the alternative course of action which is offering the package:

Current income:

ballroom rent $4,500

extras $800

total current income = $5,300

Alternative action income:

wedding package $6,000

opportunity cost ballroom rent $4,500

opportunity cost extras $800

net income increase = $700