Hey Chegg, I need help with this question. It has been answered already by Bhawn
ID: 2485687 • Letter: H
Question
Hey Chegg, I need help with this question. It has been answered already by Bhawna. I just want to be sure if the answers that I highlighted in bold are correct. Please show me how you arrive at those answers. Please show me you work step by step so I understand how it is solved. I know it is a lot, but it is important to me. It would help me a lot if I can get the right answer with the full work (step by step) shown. Thanks a lot.
CVP Analysis
Adventure Expeditions offers guided back-country hiking/camping trips in Colombia Andes. Adventure provides a guide and all necessary food and equipment at a fee of $50 per person per day. Adventure currently provides an average of 600 guide-days per month in June, July, August, and September. Based on available equipment and staff, maximum capacity is 800 guide-days per month. Monthly variable and xed operating costs are as follows:
Variable Costs Per Person Fixed Costs
Food $ 5 Equipment rental $ 5,000
Guide salary 25 Administration 5,000
Supplies 2 Advertising 2,000
Insurance 8 Total $12,000
Total $ 40
C. A French tour agency has proposed to place a special, one-time order for 75 guide-days at a reduced fee of $45 per guide-day. The agency would pay all insurance costs. There would be additional xed administrative costs of $200.
i) Calculate the increase in revenues -> $775
ii) Calculate the increase in cost for: -> $200
a. Food -> 75 x 5 = $375
b. Guide tour salary -> 25 x 75 = $1,875
c. Supplies -> 2 x 75 = 150
d. Administrative -> 8 x 75 = 600
iii) Show increase or decrease in profits. -> Is the profit increased by $775
D. An Italian tour agency has proposed to place a special, one-time order for 300 guide-days next month at a special fee of $40 per guide-day. The agency would pay all insurance costs. There would
be additional xed administrative costs of $200. Assume additional capacity beyond 800 guide-days is not available.
i) Calculate the increase in revenues -> -$2,200
ii) Calculate the increase in cost for: $200
a. Food -> 300 x 5 = $1,500
b. Guide tour salary -> 25 x 300 = 7,500
c. Supplies -> 2 x 300 = 600
d. Administrative -> 8 x 300 = 2,400
e. Opportunity cost of lost regular sales ->
iii) Show increase or decrease in profits. -> Is the profit increased by $2,200
Explanation / Answer
Answer c. Calculation of Incremental Revenue Revenue from Special Order - 75 Guide Days X $45 3,375 Less: Increase in Costs Foods -75 Days X $5 375 Guide Salary - 75 days x $25 1,875 Supplies - 75 Days X $2 150 Additional Fixed Admn Costs 200 Total Costs Increased 2,600 Incremental Profit 775 Profit in Increased by $775 Answer d. Calculation of Incremental Revenue Revenue from Special Order - 300 Guide Days X $40 12,000 Less: Increase in Costs Foods -300 Days X $5 1,500 Guide Salary - 300 days x $25 7,500 Supplies - 300 Days X $2 600 Additional Fixed Admn Costs 200 Oppourtunity Cost of Lost regular sales - 100 Days = {$50 (revenue) - (5 + 25+ 2 + 8) } X 100 Days 1,000 Total Costs 10,800 Incremental Profit 1,200