Question

Great 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. Great ​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 $240,000 per month. The​ company's relevant range extends to 13,000 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 10,000 passengers.
D. Use the contribution margin ratio to project operating income if monthly sales revenue totals $515,000.

Answer 1

Instructions are below.

Step-by-step explanation:

Giving the following information:

Selling price= $80

Unitary variable cost= $40

Fixed costs= $240,000

First, we need to calculate the unitary contribution margin and the contribution margin ratio:

Contribution margin= 80 - 40= $40

Contribution margin ratio= contribution margin/selling price

Contribution margin ratio= 40/80= 0.5

Now, we can calculate the operating income for 10,000 units:

Total contribution margin= 40*10,000= 400,000

Fixed costs= (240,000)

Net operating income= 160,000

Finally, the operating income for $515,000:

Net operating income= (contribution margin ratio*sales) - fixed costs

Net operating income= 515,000*0.5 - 240,000

Net operating income= 17,500