Funday Park competes with Fun World by providing a variety of rides. Funday sells tickets at $85 per person as a one-day entrance fee.
Variable costs are $17 per person and fixed costs are $428,400 per month.
Required:
1. Supposed Funday Park cuts its ticket price from $85 to $68 to increase the number of tickets sold. Compute the new breakeven point in tickets and in sales dollars.
a. The new breakeven point in tickets is? _
b. The new breakeven point in sales dollars is? $_
2. Ignore the information in question 1. Instead assume that Funday Park increases the variable cost from $17 to $34 per ticket. Compute the new breakeven point in tickets and in sales dollars.
a. The new breakeven point in tickets is?
b. The new breakeven point in sales dollars is? $_
3. Ignore questions 1 and 2. Supposed Funday Park reduces fixed costs from $428,400 per month to $319,600 per month. Compute the new breakeven point in tickets and in sales dollars.
a. The new breakeven point in tickets is?
b. The new breakeven point in sales dollars is? $_
4. Ignore information in questions 1 - 3. If Funday Park expects to sell 6,400 tickets, compute the margin of safety in tickets and in sales dollars.
a.
- = Margin of safety in units
- =
b.
- = Margin of safety in dollars
- =
5. Ignore information in questions 1 - 4. If Funday Park expects to sell 6,400 tickets, compute the operating leverage. Estimate the operating income if sales increase by 20%.
a.
/ = Degree of operating leverage
/ =
b. Estimate the new operating income if total sales increase by 20%?
The estimated operating income will be? $

1. Supposed Funday Park cuts its ticket price from $85 to $68 to increase the number of tickets sold. Compute the new break even point in tickets and in sales dollars.

a. The new break even point in tickets is?

= $428,400 / ($68 - $17) = 8,400 tickets

b. The new break even point in sales dollars is?

8,400 x $68 = $571,200

2. Ignore the information in question 1. Instead assume that Funday Park increases the variable cost from $17 to $34 per ticket. Compute the new break even point in tickets and in sales dollars.

a. The new break even point in tickets is?

= $428,400 / ($85 - $34) = 8,400 tickets

b. The new break even point in sales dollars is?

8,400 x $85 = $714,000

3. Ignore questions 1 and 2. Supposed Funday Park reduces fixed costs from $428,400 per month to $319,600 per month. Compute the new break even point in tickets and in sales dollars.

a. The new break even point in tickets is?

= $319,600 / ($85 - $17) = 4,7400 tickets

b. The new break even point in sales dollars is?

4,700 x $85 = $399,500

4. Ignore information in questions 1 - 3. If Funday Park expects to sell 6,400 tickets, compute the margin of safety in tickets and in sales dollars.

break even point = $428,400 / ($85 - $17) = 6,300

a.  Margin of safety in units  = (6,400 - 6,300) / 6,400 = 1.56%

b.  Margin of safety in dollars  = ($544,000 - $535,500) / $544,000 = 1.56%

5. Ignore information in questions 1 - 4. If Funday Park expects to sell 6,400 tickets, compute the operating leverage. Estimate the operating income if sales increase by 20%.

EBIT₀ = [6,400 x ($85 -$17)] - $428,400 = $435,200 - $428,400 = $6,800

EBIT₁ = [7,680 x ($85 -$17)] - $428,400 = $522,240 - $428,400 = $93,840

% change in EBIT = ($93,840 - $6,800) / $6,800 = 12.8 x 100 = 1280%

a.  Degree of operating leverage  = 1280% / 20% = 64

b. Estimate the new operating income if total sales increase by 20%?

The estimated operating income will be $93,840

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