Q1) An amusement park charges its visitors an entry fee of $50. The park faces a
ID: 1165099 • Letter: Q
Question
Q1) An amusement park charges its visitors an entry fee of $50. The park faces a fixed cost of $80,000 a day and has 100 workers with a $20 hourly rate per worker. The overhead cost is 30% of the labor cost. In addition to the labor and overhead costs, the company has to pay a safety security cost for each visitor. If the park is operating 12 hours a day, answer the following: a) If breakeven is achieved at 2500 visitors a day, calculate the safety security cost per visitor? b) If the park has 4500 visitors a day, calculate the company's profit at that day? c) If the labor cost is increased by 15%, calculate the new breakeven of the company?Explanation / Answer
(a)
Total labor cost = 12 x $20 x 100 = $24,000
Overhead cost = $24,000 x 30% = $7,200
Revenue = 2,500 x $50 = $125,000
If safety cost be $C, then in break-even,
Revenue = Fixed cost + Labor cost + Overhead cost + Safety cost
$125,000 = $(80,000 + 24,000 + 7,200) + C
$125,000 = $111,200 + C
C = $13,800
(b)
Revenue = 4,500 x $50 = $225,000
Profit = Revenue - (Fixed cost + Labor cost + Overhead cost + Safety cost)
= $225,000 - $(80,000 + 24,000 + 7,200 + 13,800)
= $225,000 - $125,000
= $100,000
(c)
Labor cost = $24,000 x 1.15 = $27,600
Overhead cost = $27,600 x 30% = $8,280
If Break-even visitors be Q, then
Q x $50 = $(80,000 + 27,600 + 8,280 + 13,800)
Q x $50 = $129,680
Q = 2,593.60
Thank you
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