Question

Playtime Park competes with Water World by providing a variety of rides. Playtime Park sells tickets...

Playtime Park competes with Water World by providing a variety of rides. Playtime Park sells tickets at $ 60 per person as a one-day entrance fee. Variable costs are $ 24 per person, and fixed costs are $ 226,800 per month. The break-even number of tickets is 6,300. If Playtime Park expects to sell 7,000 tickets, compute the contribution margin, operating income, and operating leverage, Estimate the operating income if sales increase by 15 %.

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Answer #1
Ans. Contribution margin $252000
*Calculation:
Sales (60*7000) 420000
Less: Variable cost (24*7000) 168000
Contribution margin 252000
Ans. Operating income $25200
*Calculation:
Sales (60*7000) 420000
Less: Variable cost (24*7000) 168000
Contribution margin 252000
Less: Fixed cost 226800
Operating income 25200
Ans. Operating leverage 10
*Calculation:
Operating leverage = Contribution / Opearting income
252000 / 25200
10
Ans. Operating income $63000
Increase in sales = 7000 + 15%     =    8050 units
*Calculation:
Sales (60*8050) 483000
Less: Variable cost (24*8050) 193200
Contribution margin 289800
Less: Fixed cost 226800
Operating income 63000
*Fixed cost always remains unchanged.
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