Reference no: EM132007190

Question - Stop-n-shop operates a downtown parking lot containing 800 parking spaces. The lot is open 2,500 hours per year. The parking charge per car is 50 cents per hour; the average customer parks two hours. Stop-n-shop rents the lot from a development company for 7,250 per month. The lot supervisor is paid 24,000 per year. Five employees who handle the parking of cars are paid $300 per week for 50 weeks plus $600 each for a two weeks vacation period. Employees rotate vacation during the slow months when four employees can handle the reduced load of traffic. Lot maintenance, payroll taxes and other costs of operating the parking llot include fixes costs of $3,000 per month and a variable cost of 5 cents per parking space hour.

Instructions:

a. Draw a cost volume profit graph for stop-n-shop on an annual basis. use thousands of parking space hours as the measure of volume activity.

b. What is the contribution margin ratio? What is the annual break even point in dollars of parking space revenue?

c. Suppose that the five employees were taken off the hourly wage basis and paid 30cents per car paeked, with the same vacation pay as before.(1) how would this change the contribution margin ratio and total fixed costs?(hint: the variable costs per parking space hour will now include 15cent or half of the 30 cents paid to the employees per car parked, because the average customer parks for 2hours) (2) What annual revenue would be necessary to produce operating income of 30,000 under theses circumstances?