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Scenario #1

Scenario #1. Currently CM = $9 Fixed costs = $8000 (1500+4500+2000) Break-even volume = fixed costs/CM 8000/9 = 889 seats Current profit = 900 – 889 = 11 * 9 = $99.00 Maximum profit = 1100-889 = 211 * 9 = $1899 Option 1: CM = $3 Opportunity costs = 0 Fixed Costs = 0

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Scenario #1

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  1. Scenario #1 • Currently CM = $9 • Fixed costs = $8000 (1500+4500+2000) • Break-even volume = fixed costs/CM • 8000/9 = 889 seats • Current profit = 900 – 889 = 11 * 9 = $99.00 • Maximum profit = 1100-889 = 211 * 9 = $1899 Option 1: CM = $3 Opportunity costs = 0 Fixed Costs = 0 Additional profit = 200 * $3 = $600 Over-estimate by 10% 200 – 20 = 180 actual sales; 180 over BEV; 180 * 3 = $540 Under-estimate by 10% Not possible due to capacity

  2. Scenario #1 • Option 2: • CM = $5 • Opportunity costs = $150 * 9 = $1350 • Incremental costs = $2000 • Total costs = $3350 • Break-even volume = $3350/5 = 670 seats • Additional profit = 700-670 = 30*5 = $150 • Potential profit = 1100-670 = 430*$5 = $2150 • Over-estimate by 10% = 700-70 = 630 actual; 630-670 = -40 under BEV; -40 * 5 = (200) • Under-estimate by 10% = 700 + 70 = 770 actual; 770 – 670 = 100 over BEV; 100 * 5 = $500

  3. Scenario #1 • Option 3: • CM = $9 • Opportunity costs = 100 * 9 = $900 • Incremental costs = $6500 • Total Costs = $7400 • Break-even volume = 7400/9 = 822 seats • Additional profit = 800-822 = -22 * 9 = ($198) • Potential profit = 1100 – 822 = 278 * 9 = $2502 • Over-estimate by 10% 800 – 80 = 720 actual; 720 – 822 = -102; -102 * 9 = ($918) • Under-estimate by 10% 800 + 80 = 880 actual; 880 – 822 = 58 over BEV; 58 * 9 = $522

  4. Scenario #2 • Current CM = $9.50 • Fixed costs = 1500+4500+1200 = $7200 • BE volume = fixed costs/CM • 7200/9.50 = 758 seats • Current profit = 900-758 = 142 * $9.50 = $1349 • Maximum profit = 1100-758 =342*$9.50 = $3249

  5. Scenario #2 • Option #1 CM = $3.50 • Additional profit = 200 seats * $3.50 = $700 • Overestimate by 10% = 200-20=180 seats • 180 over BEV * $3.50 = $630 • Underestimate by 10% is not possible due to space limitations

  6. Scenario #2 • Option #2 CM = $5.50 • Opportunity costs = 150 * $5.50 = $825 • Incremental costs = $1200 (perf. Costs) • Total costs = $1200 + $825 = $2025 • BE volume = 2025/$5.50 = 368 tickets • Additional profit = 700-368=332 seats * 5.50 = $1826 • Potential profit = 1100-368 = 732 seats * $5.50 = $4026 • Overestimate by 10% = 700-70 = 630 actual • 630 – 368 seats = 262 over BEV * $5.50 = $1441 • Underestimate by 10% = 700+70 = 770 actual • 770-368 = 402 seats * $5.50 = $2211

  7. Scenario #2 • Option #3 CM = $9.50 • Opportunity costs = 100 * $9.50 = $950 • Incremental costs = $5700 (perf + rehearsal) • Total costs = $6650 • BE Volume = 6650/9.50 = 700 seats • Additional profit = 800 – 700 = 100 * 9.50 = $950 • Potential profit = 1100-700 = 400 * 9.50 = $3800 • Overestimate by 10% = 800-80 = 720-700=20*9.50 = $190 • Underestimate by 10% = 800+80 = 880-700=180*9.50 = $1710

  8. Scenario #3 • Current CM = $7.00 • Fixed costs = $6000 • BE volume = 6000/7 = 857 seats • Current profit = 900-857 = 43 seats * 7 =$301 • Maximum profit = 1100-857 = 243 seats * 7 = $1710

  9. Scenario #3 • Option #1 CM = $1 • Additional profit = 200 * $1 = $200 • Overestimate by 10% = 200-20 = 180 * 1=$180 • Underestimate by 10% - not possible

  10. Scenario #3 • Option #2 CM = $3 • Opportunity costs = $150 *3=$450 • Incremental costs = $2000 (perf. Costs) • Total costs = $2450 • BE Volume = 2450/3=817 seats • Additional profit = 700-817=(117)*3=($351) loss • Potential profit = 1100-817 = 283*3=$849 • Overestimate by 10% = 700-70=630-817=(187)*3 = ($516) loss • Underestimate by 10% = 700+70=770-817=(47)*3=($141) loss

  11. Scenario #3 • Option #3 CM = $6 • Opportunity costs = $100*6=$600 • Incremental costs = $4500 (perf + rehearsal) • Total costs = $5100 • BE Volume = $5100/$6=850 seats • Additional profit = 800-850 = (50)*6=($300) loss • Potential profit = 1100-850 = 250*6=$1500 • Overestimate by 10% = 800-80=720-850=(130)*6=($780) loss • Underestimate by 10% = 800+80=880-850=30*6=$180

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