Question

Live It 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 $ 60 per passenger. Live It ​Cruiseline's variable cost of providing the dinner is $ 30 per​ passenger, and the fixed cost of operating the vessels​ (depreciation, salaries, docking​ fees, and other​ expenses) is $ 270 comma 000 per month. The​ company's relevant range extends to 20 comma 000 monthly passengers. If Live It Cruiseline sells an additional 700 ​tickets, by what amount will its operating income increase​ (or operating loss​ decrease)? ​First, identify the​ formula, then compute the operating income increase​ (or operating loss​ decrease). Fixed cost per passenger x ▼ = Operating

Answer 1

Answer:

Live It Cruiseline

The operating income will increase by $11,550 from the sale of additional 700 tickets.

Explanation:

a) Data and Calculations:

Selling price of Dinner Cruise = $60

Variable cost = $30

Fixed costs = $270,000 per month

Relevant range quantity = 20,000

Fixed costs per passenger = $270,000/20,000 = $13.50

b) Income Statements

                                  Relevant Range       Additional 700 Tickets

Sales                            $1,200,000                 $1,242,000

Variable cost                   600,000                      6,21,000

Contribution                 $600,000                     $621,000

Fixed costs                     270,000                       279,450

Net operating income $330,000                     $341,550

c) The preparation of two income statements differentiates the net operating income under the two scenarios: relevant capacity and the additional sale of ticket, clearly identifying the differences.  The results show that Live It Cruiseline would add $11,550 to the net operating income by selling additional 700 tickets, even though, these additional tickets will cause an increase in the fixed costs.