Question

Break-even number of passengers for a cruise Ocean Escape Cruise Lines has a boat with a capacity of 1,200 passengers. An eight-day ocean cruise involves the following costs: Crew $240,000 Fuel 60,000 Fixed operating costs 800,000 The variable costs per passenger for the eight-day cruise include the following: Meals $900 Variable operating costs 400 The price of the cruise is $2300 per passenger.

a. Determine the break-even number of passengers for the eight-day cruise.

b. Assume 900 passengers booked the cruise. What would be the profit or loss for the cruise?

c. Assume the cruise was booked to capacity. What would be the profit or loss for the cruise?

d. If the cruise cannot book enough passengers to break even, how might the cruise line respond?

Answer 1

Answer for a)

Contribution:Price-variabpe cost

$2300-$(900+400)=$1000

Break even points in passengers

Fixed costs/contribution per passenger

=$(240000+60000+800000)/$1000

=1100 passengers.

Answer for b)

Profit(loss) at 900 passengers:

900passengers×($2300-$1300)-$1100000

=$(200000) loss.

Answer for c)

Profit at capacity:

900passengers×($2300-$1300)-$1100000

=$100000

Answer for d)

Here, of the cruise doesn't have enough booking for break even I would rather recommend to cancel the bookings as the loss is too high.

If possible I would recommend to raise the price per passenger as 1100 passengers for 1200 capacity cruise break even is very high.