CAPACITY PLANNING- Worked answers for 1-6

CAPACITY PLANNING- Worked answers for 1-6 - Tube Country...

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Tube Country owns a “fleet” of 200 river rafts, rented by tourists who wish to float down the Ichituckni River. Each raft is returned on the same day it is rented, and each raft can only be rented once during a business day. Rough water and predators (animals with sharp teeth) along the Ichituckni River often cause rafts to become scratched and leak air, so the staff at Tube Country estimates that 5% of its rental fleet is unavailable at any given time, as these rafts are awaiting repairs. Tube Country rents rafts for $6 each, and incurs $1.00 in variable costs with each raft rental. Tube Country must also pay $20,000 in fixed businesses costs annually. Please answer the following five questions based on this information. Question 1 How many rentals does Tube Country need to breakeven each year? Formula: Fixed Costs: $20,000.00 Variable Costs: $1.00 per unit Revenue: $5.00 per unit Break-even Point = ( Fixed Costs ) / ( Market price per unit Cost per unit) Break-even Point = ( $20,000.00 ) / ( $6.00 - $1.00 ) Break-even Point = ( $20,000.00 ) / ( $5.00 ) Break-even Point = 4,000 Rentals The answer is d ). 4,000 raft rentals The formula above takes the Fixed Costs of $20,000.00 and divides them by the contribution, 5, which is the profit for each unit sold ( $6 -$1 ). The answer is 4,000 rentals. Check:
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This note was uploaded on 08/30/2011 for the course MGO 302 taught by Professor Hancock during the Fall '08 term at SUNY Buffalo.

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CAPACITY PLANNING- Worked answers for 1-6 - Tube Country...

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