SoniCo operates the Annabell Lee, a riverboat that provides a 2-hour cruise down the St. John River and a buffet dinner for up to 90 guests. On average, 80 guests make reservations and pay the $55 charge per cruise. While the company offers a cash bar, it provides soft drinks at no charge. An outside catering service provides the food, setup, and cleanup for the dinners and charges SoniCo a catering fee. The average costs incurred per guest for each cruise include the following: Each dinner cruise takes guests 8 miles down the river, followed by a return trip. The cost of boat fuel is $4 per gallon, and the riverboat uses 2.5 gallons per mile. The average number of dinner cruises per month is 25.
a. Calculate the contribution margin per cruise.
b. Calculate the break-even point in revenue dollars for a month.
c. What amount will be reported as contribution margin on the company's monthly income statement if there are 84 guests on each cruise? Briefly explain what information the answer provides to managers.
d. If the average number of guests on each cruise is 84, as indicated in part c, what effect will this have on the break-even point in revenue dollars per month? Briefly explain.
e. Why is a lower break-even point considered to be more favorable than a higher break-even point? Explain.

Question

SoniCo operates the Annabell Lee, a riverboat that provides a 2-hour cruise down the St. John River and a buffet dinner for up to 90 guests. On average, 80 guests make reservations and pay the $55 charge per cruise. While the company offers a cash bar, it provides soft drinks at no charge. An outside catering service provides the food, setup, and cleanup for the dinners and charges SoniCo a catering fee. The average costs incurred per guest for each cruise include the following:  Each dinner cruise takes guests 8 miles down the river, followed by a return trip. The cost of boat fuel is $4 per gallon, and the riverboat uses 2.5 gallons per mile. The average number of dinner cruises per month is 25.  
a. Calculate the contribution margin per cruise.
b. Calculate the break-even point in revenue dollars for a month.
c. What amount will be reported as contribution margin on the company's monthly income statement if there are 84 guests on each cruise? Briefly explain what information the answer provides to managers.
d. If the average number of guests on each cruise is 84, as indicated in part c, what effect will this have on the break-even point in revenue dollars per month? Briefly explain.
e. Why is a lower break-even point considered to be more favorable than a higher break-even point? Explain.

Quizplus · Accepted Answer

The Answer of SoniCo operates the Annabell Lee, a riverboat that provides a 2-hour cruise down the St. John River and a buffet dinner for up to 90 guests. On average, 80 guests make reservations and pay the $55 charge per cruise. While the company offers a cash bar, it provides soft drinks at no charge. An outside catering service provides the food, setup, and cleanup for the dinners and charges SoniCo a catering fee. The average costs incurred per guest for each cruise include the following:  Each dinner cruise takes guests 8 miles down the river, followed by a return trip. The cost of boat fuel is $4 per gallon, and the riverboat uses 2.5 gallons per mile. The average number of dinner cruises per month is 25.  
a. Calculate the contribution margin per cruise.
b. Calculate the break-even point in revenue dollars for a month.
c. What amount will be reported as contribution margin on the company's monthly income statement if there are 84 guests on each cruise? Briefly explain what information the answer provides to managers.
d. If the average number of guests on each cruise is 84, as indicated in part c, what effect will this have on the break-even point in revenue dollars per month? Briefly explain.
e. Why is a lower break-even point considered to be more favorable than a higher break-even point? Explain.

SoniCo Operates the Annabell Lee, a Riverboat That Provides a 2-Hour