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The City of Blakston owns and operates a community swimming pool, which is open for 90 days each summer during June, July, and August. A daily admission fee is charged to patrons, and by law, 10 percent of all recreational and sporting fees must be remitted to a state tourism promotion fund. The city manager's goal is for pool admission revenue, after subtracting the state fee and variable costs, to be sufficient to cover fixed costs. Variable costs are assumed to be 15 percent of gross revenue, and fixed costs for the three-month period total $33,000.

The budget for the pool for the current year is as follows:
- Adult admissions: 30 per day x 90 days x $5.00 = $13,500
- Student admissions: 120 per day x 90 days x $2.50 = $27,000
- Total revenue: $40,500
- State tourism fee: $4,050
- Net revenue: $36,450
- Variable costs: $6,075
- Fixed costs: $33,000
- Expected deficit: $(2,625)

Questions:
1. Given the anticipated mix of adult and student admissions, how many total admissions must the pool have in order to break even for the season?
2. Regardless of the admission mix, what is the highest number of admissions necessary to break even for the season?
3. How would you use the above information for decision-making purposes?

Answer :

Final answer:

Given the operational data for a community swimming pool, including revenue, variable costs, and fixed costs, a cost-volume-profit analysis can be conducted to ascertain the admission mix required to breakeven during the season and the highest number of admissions that would be necessary to do so. This break-even analysis can be instrumental to business decision making such as pricing strategies or cost minimization

Explanation:

The subject of this question pertains to cost-volume-profit analysis, or break-even analysis, in a business context. Here we are asked to consider the operational data for a community swimming pool during a 90-day season. The pool generates revenue through a combination of adult and student admissions, but also incurs variable and fixed costs. It also has a statutory obligation to pay a percentage of its gross revenue to a state tourist promotion fund.

To address the third question, the breakeven point for the season would be achieved when total admissions revenue equals the fixed costs and variable costs for the pool, including the state tourism fee. This can be calculated using the formula: Fixed costs / (Selling price per unit - Variable cost per unit). You would need to calculate this separately for adult and student admissions due to the different prices.

In response to the fourth question, the maximum admissions required to break even would be when all admissions are of students because student tickets are priced lower than adult tickets. Therefore, it would take more student admissions than adult admissions to reach the breakeven point. Again, the breakeven point would be the point where revenue equals the fixed plus variable costs.

To utilise this information for decision making, the city manager could use the breakeven analysis to evaluate different pricing strategies or consider ways to minimize costs which could include negotiating for a lower state tourism fee or finding efficient operating methods to reduce the variable costs.

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Rewritten by : Barada

Total admissions are 8632 and the highest number of admissions is 11681.

The net revenue per admission is the admission revenue minus the state tourism fee and variable costs, which is $5.00 - $0.50 - $0.675 = $3.825. Therefore, the total admissions needed to break even can be calculated as:

Total Admissions = Fixed Costs / Net Revenue per Admission

Total Admissions = $33,000 / $3.825

Total Admissions ≈ 8,632 admissions

For the highest number of admissions necessary to break even:

Highest Number of Admissions = Fixed Costs / Net Revenue per Student Admission

Highest Number of Admissions = $33,000 / $2.825

Highest Number of Admissions ≈ 11,681 admissions

The above information provides insights into the financial performance of the community swimming pool. It shows that with the anticipated mix of adult and student admissions, the pool needs a minimum of approximately 8,632 total admissions to break even for the season.

To eliminate the expected deficit, the city manager could consider the following actions:

  • Increase promotional activities to attract more patrons to the pool.
  • Adjust admission prices to optimize revenue without significantly impacting demand.

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