17SE - Horngren'S Financial And Managerial Accounting

Question

Use the following information to complete Short Exercises S20-16 and S20-17. 

Wild Waters Swim Park sells individual and family tickets. With a ticket, each person receives a meal, three beverages, and unlimited use of the swimming pools. Wild Waters has the following ticket prices and variable costs for 2018: 

                                                                                      Individual             Family Sales price per ticket                                                       \( 50                   \) 150 Variable cost per ticket                                                             35                        140

Wild Waters expects to sell one individual ticket for every four family tickets. Wild Waters’s total fixed costs are $27,500. 

S20-17 Calculating breakeven point for two products 

For 2019, Wild Waters expects a sales mix of four individual tickets for every one family ticket. 

Requirements 

1. Compute the new weighted-average contribution margin per ticket. 

2. Calculate the total number of tickets Wild Waters must sell to break even. 

3. Calculate the number of individual tickets and the number of family tickets the company must sell to break even.

Step-by-Step Solution

Answer

1. The weighted average contribution margin per unit is  $ 14
2. The breakeven number of tickets are 1,965
3. The company must sell 1,572 individual tickets and 393 family tickets.

Computation of the weighted-average contribution margin per ticket

	Individual	Family	Total
Sales price per unit	$50	$150
Variable cost per unit	$35	$140
Contribution margin per unit	$15	$10
Sales mix in units	x 4 tickets	x 1 ticket	5 tickets
Contribution margin	$60	$10	$70
Weighted-average contribution margin per unit ($55/5 tickets)			$14

Calculation of total number of tickets Wild Waters must sell to break even

$\begin{array}{c}\mathbf{Break}\mathbf{ }\mathbf{even}\mathbf{ }\mathbf{tickets}\mathbf{=}\frac{\mathrm{Fixedcost}}{\mathrm{Weighted} \mathrm{average} \mathrm{contribution} \mathrm{margin} \mathrm{pe} \mathrm{runit}}\\ \mathbf{=}\frac{\$27,500}{\$14}\\ =1,965 \mathrm{tickets}\end{array}$

Calculation of breakeven sales of individual tickets and family tickets

Particulars	Amount
Breakeven sales of individual tickets	$\mathbf{1}\mathbf{,}\mathbf{965}\mathbf{ }\mathbf{tickets}\mathbf{ }\mathbf{x}\mathbf{ }\mathbf{4}\mathbf{/}\mathbf{5}\mathbf{=}\mathbf{1}\mathbf{,}\mathbf{572}\mathbf{ }\mathbf{tickets}$
Breakeven sales of family tickets	$\mathbf{1}\mathbf{,}\mathbf{965}\mathbf{ }\mathbf{ticketsx}\mathbf{1}\mathbf{/}\mathbf{5}\mathbf{=}\mathbf{393}\mathbf{ }\mathbf{tickets}$