Live It Cruiseline offers nightly dinner cruises off the coast of Miami, San Fra

Question

Live It Cruiseline offers nightly dinner cruises off the coast of Miami, San Francisco, and Seattle. Dinner cruist tickets sell for $60 per passenger. Live It Cruiseline's variable cost of providing the dinner is $30 per passenger, and the fixed cost of operating the vessels (depreciation, salaries, docking fees, and other expenses) is $270,000 per month. The company's relevant range extends to 16,000 mothly passengers. The breakeven units are 9,000 tickets sold. If Live It Cruiseline sells 10,000 dinner cruises, compute the margin of safety.

For Part A: in units

For Part B: in sales dollars

For Part C: as a percentafe of sales

Explanation / Answer

Solution:

Live It Cruiseline sells 10,000 dinner cruises

Break Even Point in units (given) = 9,000 tickets

(a)

Margin of Safety (in units) = Unit Sold – Break Even Units = 10,000 – 9,000 = 1,000 Units

(b)

Sales Value in dollars = 10,000 Units sold x Selling Price per unit = 10,000 x $60 = $600,000

Break Even Point in dollars = Break Even Units x Selling Price per unit = 9,000 x $60 = $540,000

Margin of Safety (in dollars) = Sale Value in dollars – Break Even Point in dollars

Margin of Safety (in dollars) = $600,000 - $540,000 = $60,000

(c)

Margin of Safety as a percentage of sales = Margin of Safety in dollars / Sale Value in dollars x 100 = $60,000 / $600,000 x 100 = 10%

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