Live It Cruiseline offers nightly dinner cruises departing from several cities on the eastern coast of the United States including Charleston, Baltimore, and Alexandria. Dinner cruise tickets sell for $ 60 per passenger. Live It Cruiseline's variable cost of providing the dinner is $ 30 per passenger, and the fixed cost of operating the vessels (depreciation, salaries, docking fees, and other expenses) is $ 270 comma 000 per month. The company's relevant range extends to 20 comma 000 monthly passengers. If Live It Cruiseline sells an additional 700 tickets, by what amount will its operating income increase (or operating loss decrease)? First, identify the formula, then compute the operating income increase (or operating loss decrease). Fixed cost per passenger x ▼ = Operating

Live It Cruiseline

The operating income will increase by $11,550 from the sale of additional 700 tickets.

Explanation:

a) Data and Calculations:

Selling price of Dinner Cruise = $60

Variable cost = $30

Fixed costs = $270,000 per month

Relevant range quantity = 20,000

Fixed costs per passenger = $270,000/20,000 = $13.50

b) Income Statements

                                  Relevant Range       Additional 700 Tickets

Sales                            $1,200,000                 $1,242,000

Variable cost                   600,000                      6,21,000

Contribution                 $600,000                     $621,000

Fixed costs                     270,000                       279,450

Net operating income $330,000                     $341,550

c) The preparation of two income statements differentiates the net operating income under the two scenarios: relevant capacity and the additional sale of ticket, clearly identifying the differences.  The results show that Live It Cruiseline would add $11,550 to the net operating income by selling additional 700 tickets, even though, these additional tickets will cause an increase in the fixed costs.

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