Problem: CVP ANALYSIS
Patsy Ponder is based in Marlborough Sounds and she owns a launch which she charters out for fishing trips. Patsy charters the launch at $900 per day. Her operating costs are:
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Annual license fees
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$1,200
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Annual Depreciation
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$30,000
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Annual Maintenance and repairs
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$6,000
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Marina berth annual fee
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$25,000
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Diesel oil per day
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$200
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Captain's fees per day
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$320
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Required:
1. Calculate the annual fixed costs.
2. Calculate the contribution margin per day.
3. How many days does the boat need to be chartered so that the business breaks even?
4. Patsy would like to be able to draw $75,000 from the business How many days will the launch need to be chartered to achieve this goal?
5. Andy Bowles is a resident of the town who makes Patsy an offer which is that he will charter the boat and take care of the Captain's fees, diesel and oil and the marina berth annual fee. In return he will pay Patsy an annual amount of $110,000. What will be the profit under the new arrangement?
6. Discuss whether Patsy should take up Andy's offer. You may consider both financial and non-financial factors.