Suppose Excel Cruiseline cuts its dinner cruise ticket price from $ 50 to $ 40 to increase the number of passengers. Compute the new breakeven point in units and in sales dollars. Explain how changes in sales price generally affect the breakeven point. 2. Assume that Excel Cruiseline does not cut the price. Excel Cruiseline could reduce its variable costs by no longer serving an appetizer before dinner. Suppose this operating change reduces the variable expense from $ 20 to $ 10 per passenger. Compute the new breakeven point in units and in dollars. Explain how changes in variable costs generally affect the breakeven point.

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andromache andromache · Answer 1 · 2020-04-10T06:29:03+02:00

Answer:

The computations are shown below:

Explanation:

The computation is shown below:

1)As we know that

Break even point = Fixed cost ÷ contribution margin per unit

= $210,000 ÷ $20

= 10,500 units

The contribution margin per unit is

= Selling price per unit - variable cost per unit

= $40 - $20

= $20

And, the break even in dollars is

= Break even point in units × selling price per unit

= 10,500 units × $40 per unit

= $420,000

Therefore, due to decrease in selling price per unit, the break even point is increased which results into decrease in contribution margin per unit

2.

As we know that

Break even point = Fixed cost ÷ contribution margin per unit

= $210,000 ÷ $40

= 5,250 units

The contribution margin per unit is

= Selling price per unit - variable cost per unit

= $50 - $10

= $40

And, the break even in dollars is

= Break even point in units × selling price per unit

= 5,250 units × $50 per unit

= $262,500

Therefore, due to decrease in variable cost per unit, the break even point is reduced which results in increase in contribution margin per unit