Question: Mr Zoo is planning to set up a mini Zoo in Howick.
The following relates to different pricing plans of visiting the zoo and costs of running the zoo.
Pricing Plan 1 - $30 per person (a special pack will be included)
Pricing Plan 2 - $25 per visitor (the special pack not to be included)
Variable Costs per visitor
Special Pack - $8
Zoo Consumables - $7
Zoo Expenses - $2
Total Fixed Costs - $200,000
REQUIRED: Study the information above then answer the following questions.
(a) Using the CVP formula, calculate the number of units (and its dollar amount) for achieving
a. Breakeven
b. A profit of $30,000 for both plans.
(b) Calculate the Contribution Margin ratio for both plans.
(c) Describe the meaning of Contribution Margin ratio.
(d) Explain the relationship between Contribution Margin ratio and Number of Breakeven units.
(e) Explain why it is important to calculate Margin of Safety.
(f) State TWO examples of fixed cost in relation to the zoo.
(g) Define Relevant Range.
(h) Draw a CVP graph and identify the following on the graph (CVP graph template will be provided):
a. Breakeven Point
b. Profit Zone
c. Loss Zone
(i) Write a report to Mr Zoo for recommending which pricing plan should be adopted. Your recommendation should include at least ONE piece of financial and ONE piece of non-financial information.