Case Study You run a ski resort and are thinking of opening up an additional ski
ID: 383974 • Letter: C
Question
Case Study You run a ski resort and are thinking of opening up an additional ski lift. You believe this will attract more skiers and improve profitability. The fixed cost for the lift will be $200,000 for the season. Based on a sample you took recently, for every 1000 skiers you had the following revenues: Lift tickets $65,000 Food - $22,000 Drinks $8,000 You estimate that the variable costs for these revenues were $6,000 for lift tickets and operation of the lift, $11,000 for food and $3,000 for drinks. How many additional skiers will have to come to your resort during the season to breakeven on the new lift? The ski season in your area is effectively 4 months long (December through March). Your estimate for skiers for the upcoming year is No New Lift With New Lift December 50% probability 50% probability 1000 800 1750 15so January 70% 30% 1500 1000 2800 1750 February 90% 1 0% 1200 1000 1750 March 40% 60% 1000 800 1750 800 Given this forecast, what is your expected additional profitability (or loss) for this season if you add the new lift?Explanation / Answer
2667-1000 is the additional.
Now per person margin = 75000/1000 = $75
FC Fixed cost 200000 Variable cost per 1000 Lift Ticket 6000 Food 11000 Drinks 3000 A Total 20000 Revenue per 1000 Lift Ticket 65000 Food 22000 Drinks 8000 B Total 95000 M=(B-A) So Margin 75000 So Breakeven FC/M 2.666667 2667 Skiers So additional 1667 Skiers