Problem 1:
The KDJ Inn's summary income statement is as follows:
|
|
|
|
Rooms
|
rood
|
Total
|
|
|
|
Revenues
|
$1,500,000
|
$500,000
|
$2,000,000
|
|
|
|
Variable Costs
|
300,000
|
400,000
|
700,000
|
|
|
|
|
|
|
|
|
|
|
Contribution
Margin
|
$1,200,000
|
$100,000
|
1,300,000
|
|
|
|
|
|
|
|
|
|
|
Fixed Costs
|
|
|
1,000,000*
|
|
|
|
Pretax Income
|
|
|
300,000
|
|
|
|
Income Taxes
|
|
|
75,000
|
|
|
|
Net Income
|
|
|
$ 225,000
|
*Includes Lease Expense of $480,000 Required:
1. What is the breakeven point for the KDJ Inn?
2. If the fixed cost lease is traded for a variable lease of 20 percent of total sales, what is the revised breakeven point for the KDJ Inn?
3. If (independent of #2) the variable costs increase by 10 percent, by what percentage must sales increase in order for the KDJ Inn to earn its net income of $225,000?
4. If (independent of #2 and #3) the KDJ Inn is to earn net income of $300,000, what must its room sales equal? (Assume that the sales mix remains constant.)
Problem 2:
Keith and Sue's Dude Ranch (KSDR) is a 40-room hotel near Denver with a 30-seat restaurant and stables (a profit center).
Keith and Sue Cass, the owners, are interested in having you use CVP analysis to aid them in determining various sales levels for their resort.
The following is a summary of the most recent annual income statement.
Keith and Sue's Dude Ranch
Condensed Income Statement
For the year ended December 31, 20X5
Rooms Food Stables Total
Revenues $500,000 $200,000 $5,000 $705,000
Variable Expenses 150,000 150,000 4,000 304,000
Contribution Margin $350,000 $50,000 $1,000 401,000
Fixed Expense 151,000
Income Tax 125,000
Net Income $125,000
Required:
1. What is the food department's CMR?
2. What is the weighted average CMR for ECDR?
3. What is the breakeven point?
4. The Casses wish to increase net income by $30,000 and feel this can be done by increasing room sales only. Determine the necessary increase in room sales to meet this requirement.
5. Assume (independent of #4) that revenue from the stables can be increased, but only with a $500 increase in advertising (a fixed cost) for brochures to go in each room. What level of sales from the stables must be generated to cover this cost?
6. Assume that the brochures mentioned in #5 are used as a direct mailing. The cost would now be $1,500 to cover printing and mailing, but sales for each department would increase. Assuming that room sales, food sales, and stable revenue remain at a ratio of 5 to 2 to .05, how much must revenues increase for net income to remain constant?