Question: CVP analysis, service firm. Lifetime Escapes generates average revenue of $7,500 per person on its 5-day package tours to wildlife parks in Kenya. The variable costs per person are as follows:
Airface $1,600
Hotel accommodations 3,100
Meals 600
Ground transportation 300
Park tickets and other costs 700
Total $8,300
Annual fixed costs total $570,000.
1. Calculate the number of package tours that must be sold to break even.
2. Calculate the revenue needed to earn a target operating income of $102,000.
3. If fixed costs increase by $19,000, what decrease in variable cost per person must be achieved to maintain the breakeven point calculated in requirement 1?
4. The general manager at Lifetime Escapes proposes to increase the price of the package tour to $8,200 to decrease the breakeven point in units. Using information in the original problem, calculate the new breakeven point in units. What factors should the general manager consider before deciding to increase the price of the package tour?