Reference no: EM132767538

You are the owner of a parasailing company that is expanding operations to a new beachfront location, and you need to establish a 3-year analysis for the bank that may loan you the funds to purchase your boat and parasailing equipment. A lot of business is done on a referral basis, where a company pays a fee to a 3rd party to send them customers. However, 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 cost on 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:

Problem 1: Calculate the Year 1 break-even quantity, contribution margin per unit, and contribution margin ratio. Explain how the values were determined.

Problem 2: Calculate the Year 2 break-even quantity, break-even sales, and contribution margin ratio. Explain how the values were determined.

Problem 3: Determine the number of flights (units) needed to retain a profit of $10,000 in Year 3, assuming the company does allow for referrals.