Question

Classy Cruiseline offers nightly dinner cruises departing from several cities on the eastern coast of the United States including​ Charleston, Baltimore, and Alexandria. Dinner cruise tickets sell for $ 80 per passenger. Classy ​Cruiseline's variable cost of providing the dinner is $ 40 per​ passenger, and the fixed cost of operating the vessels​ (depreciation, salaries, docking​ fees, and other​ expenses) is $ 360 comma 000 per month. The​ company's relevant range extends to 16 comma 000 monthly passengers. Use this information to compute the​ following: a. What is the contribution margin per​ passenger? b. What is the contribution margin​ ratio? c. Use the unit contribution margin to project operating income if monthly sales total 13 comma 000 passengers. d. Use the contribution margin ratio to project operating income if monthly sales revenue totals $ 775 comma 000.

Answer 1

a. Contribution margin per passenger = $40

b. Contribution margin ratio = 50%

c. Operating Income = $160,000

d. Operating Income = $27,500

Step-by-step explanation:

a. Contribution margin per passenger = Ticket price per passenger - Variable cost per passenger

Contribution margin per passenger = $80 - $40

Contribution margin per passenger = $40

b. Contribution margin ratio = Contribution margin per passenger / Ticket price per passenger

Contribution margin ratio = $40 / $80

Contribution margin ratio = 0.5

Contribution margin ratio = 50%

c. Contribution margin per passenger = $40

Sales (in units) = 13,000 Passengers

Total Contribution = $520,000

Fixed Costs = $360,000

Operating Income = $160,000

d. Sales revenue = $775,000

Contribution margin ratio = 50%

Total Contribution =$387,500 ($775,000 * 50%)

Fixed Costs = $360,000

Operating Income = $27,500