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Table of Contents
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
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
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
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.
