50.1K

Verified Solution

Link Copied!

The Soaring Kites Parasailing Company

The Soaring Kites Parasailing Company offers adventurous people the opportunity to experience the sea, sand, and sun in a visually and exhilarating way.Parasailing gives patrons the freedom of flight and the excitement of skydiving in an accessible medium (TRUiC, 2020).

Due to the success of The Soaring Kites Parasailing Company, we are opening a new beachfront location, and we have prepared a three-year analysis for a loan and the expansion of our great company experience.

Year 1:

Break-even quantity

893

Contribution margin

45

Contribution margin ratio

25.71

Year 2:

Break-even quantity

968.67

Break-even sales

$169,549

Contribution margin ratio

23.71%

Explanation of Year One

The sales price is $175, and the variable costs are $130 if you add the fuel cost per flight at $100 and the boat crew per flight at $30.To configure the contribution margin per unit, we need to use $175 minus $130 to get the final figure of $45 per unit.The fixed cost is determined by adding the estimated loan of $350 x 12, full-time salary $2500 x 12, and dock fee $500 x 12, which results in a total of $40,200.At this point, we divide $40,200 by the contribution margin of 45, and we get or break-even quantity of 893.Finally, in year one, we configure the contribution margin ratio by 45 per unit divided by the sales price of 175 comes out to 25.71%.

Explanation of Year Two

Our variable cost goes up in year two because we add in the location referrals at $3.50, which brings our final tally to $133.50 for variable costs.With our sales price staying the same, our contribution margin is 41.50. Our fixed costs stay the same at $40,200 divided by our contribution margin of 41.50, giving us a break-even quantity of $968.67. The contribution margin ratio changes to 23.71% with the addition of the variable costs with the equation of $41.50 divided by the sales price of $175. Then taking our fixed costs of $40,200 divided by 23.71% with an outcome for the break-even sales of $169,549

___________________________________________________________________________________________________

• Determine the number of flights (units) needed to retain a profit of $10,000 in Year 3, assuming the company does allow for referrals.
• Recommend if the bank should issue the loan.

Answer & Explanation Solved by verified expert

See Answer