Take-a-Break Travel Company offers spring break travel packages to college students. Two of its packages, a 5-day, 4-night trip to Cancun and a 7-day, 6-night trip to Jamaica, have the following characteristics: Package Specifications Cancun Jamaica Cost Data Oceanfront room; number of nights 4 6 $ 20 /night Meals: Breakfasts 4 6 $ 5 /ea Lunches 4 6 $ 8 /ea Dinners 4 0 $ 10 /ea Scuba diving trips 6 3 $ 17 /ea Water skiing trips 8 4 $ 12 /ea Airfare (round trip from Miami) 1 1 $ 215 (Cancun), $ 290 (Jamaica) Transportation to and from airport 1 1 $ 17 (Cancun), $ 12 (Jamaica) The Cancun trip sells for $750, and the Jamaica trip sells for $690, and both packages allow two bags to be checked for free. Required: 1. What are the current profit margins on both trips? 2. Take-a-Break’s management believes that it must drop the price on the Cancun and Jamaica trips to $710 and $640, respectively, in order to remain competitive in the market. Recalculate profit margins for both packages at these price levels.

Financial And Managerial Accounting

15th Edition

ISBN:9781337902663

Author:WARREN, Carl S.

Publisher:WARREN, Carl S.

Chapter25: Differential Analysis And Product Pricing

Section: Chapter Questions

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Take-a-Break Travel Company offers spring break travel packages to college students. Two of its packages, a 5-day, 4-night trip to Cancun and a 7-day, 6-night trip to Jamaica, have the following characteristics:

Package Specifications	Cancun		Jamaica	Cost Data
Oceanfront room; number of nights		4			6	$	20	/night
Meals:
Breakfasts		4			6	$	5	/ea
Lunches		4			6	$	8	/ea
Dinners		4			0	$	10	/ea
Scuba diving trips		6			3	$	17	/ea
Water skiing trips		8			4	$	12	/ea
Airfare (round trip from Miami)		1			1	$	215	(Cancun),
						$	290	(Jamaica)
Transportation to and from airport		1			1	$	17	(Cancun),
						$	12	(Jamaica)

The Cancun trip sells for $750, and the Jamaica trip sells for $690, and both packages allow two bags to be checked for free.

Required:

1. What are the current profit margins on both trips?

2. Take-a-Break’s management believes that it must drop the price on the Cancun and Jamaica trips to $710 and $640, respectively, in order to remain competitive in the market. Recalculate profit margins for both packages at these price levels.

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