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What are the current profit margins on both given trips

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Reference no: EM13877374

Target Costing in a Service Firm Take-a-Break Travel Company offers spring break travel packages to college students. Two of its packages, a seven-day, six-night trip to Cancun and a five-day, four-night trip to Jamaica, have the following characteristics:

Package Specifications

Cancun

Jamaica

Cost Data

Oceanfront room; number of nights

6

4

$ 30/night

Meals:


Breakfasts

7

5

$  5/ea

Lunches

7

5

$  7/ea

Dinners

6

0

$ 10/ea

Scuba diving trips

4

2

$ 15/ea

Water skiing trips

5

2

$ 10/ea

Airfare (round trip from Miami)

1

1

$200 (Cancun), $355 (Jamaica)

Transportation to and from airport

1

1

$ 15 (Cancun), $ 10 (Jamaica)

The Cancun trip sells for $750, and the Jamaica trip sells for $690.

Required

1. What are the current profit margins on both trips?

2. Take-a-Break's management believes that it must drop the price on the Cancun trip to $710 and on the Jamaica trip to $650 in order to remain competitive in the market. Recalculate profit margins for both packages at these price levels.

3. Describe two ways that Take-a-Break Travel could cut its costs to get the profit margin back to their original levels.

Reference no: EM13877374

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