Reference no: EM132502356

You are the owner of a parasailing company that is expanding operations to a new beachfront location, and you need to prepare a three-year analysis for the bank that may loan you the funds to purchase your boat and parasailing equipment. Because of your well-established reputation, you already have received requests for flights to be scheduled as soon as you Open the new location. Therefore, you expect to break-even the first year but must calculate the number of flights needed. You also need to determine the new break-even point in Year 2 if the location allows referrals, which you believe will average about 2% of the sales price overall. Finally, you need to determine the volume needed to have $10,000 in profit in Year 3.

The following information is available:

Sales price per flight $175

Estimated loan payment per month $350

Fuel costs per flight $100

Full-time scheduler salary $2,500 per month

Boat crew per flight $30 $500 per month dock fee and use of a small office on the pier

Requirements:

Question 1: Calculate the Year 1 break-even quantity, contribution margin, and contribution margin ratio.

Question 2: Explain how the values were determined. Calculate the Year 2 break-even quantity, break-even sales.