Question

You are the management accountant at one of the famous NWR resorts offering special packages for holidaymakers. Accommodation facilities are in the form of chalets with a capacity of five (5) family members per chalet. For the whole month of December 2019, it hosted 300 holidaymakers, which is only 95% of full capacity, and all Chalets were fully occupied. Package 1 has a daily rate of N$ 120.00 per person, Package 2 has a daily rate of N$ 200.00 per person, and the sales mix ratio is 60:40, respectively. Monthly variable costs are N$ 350 000 for package 1 and N$ 400 000 for package 2 with combined fixed costs of N$ 300 000.

Due to the Covid-19 impact on the tourism industry, revenue is projected to decrease by 30% and variable costs by 15%. Using the same information, how much revenue will be required to break even in the next month?

(NB: Round-off to the nearest whole number)

Answer 1

Revenue: = Qty of Package 1* 120+ Qty. of Package 2* 200

Out of total booking ration of Package 1 and package 2: 60:40

A number of tourist opted for:

Package 1=180

Package 2=120

Therefore Average Revenue per customer = 0.60*120+0.40*200=$152

Revenue is expected to decrease by 30%

Hence, the new average revenue = 0.7*152=$106.4=$106

New (post reduction of 30%) daily Variable cost per tourist for package One = (350000/180*0.85)/30=$55

New daily Variable cost per tourist for package two = (400000/120*0.85)/30=$94

Average daily variable cost per tourist = 0.6*55+0.4*94= $71

Fixed Cost= $300000

Break Even quanity = Fixed Cost/ Pre unit revenue -Per unit variable cost

= 300000/(106-71)=8571 Tourist days.

Per day occupancy requried = 8571/30=285 holiday makers.