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

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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 = number 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*30

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Total 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 difference 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 = $1,900

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From 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.

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