BUS 5110-01 Writing Assignment 3

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Parasailing Financial Report
Department of Business, University of the People
BUS 5110: Managerial Accounting
Dr. Pankaj Chaudhari
February 15, 2023

2
Introduction
As the owner of a parasailing company, it is important to ensure the financial stability of
the company, especially when expanding into a new location. As such, it is essential to lay out
the various costs, revenues, and contribution margin percentages that the future projections show
and analyze the data to determine the health and well-being of the company (Chron Contributor,
2021). Additionally, creating a three-year analysis for the sake of obtaining a loan from the bank
is the key to having a successful expansion. This report will detail the known costs and revenues
incurred by the parasailing company and advise on the bank’s decision to approve or deny the
loan.
For the first year, the costs and revenues have been laid out in Table 1. Using the
knowledge that each cost and revenue summed up would balance and the company would break
even, the number of flights becomes the variable in Equation 1. Solving for x gives the number
of flights for break-even (equal to or greater than zero) to be 893.33 which must be rounded up
to 894 as there cannot be a partial flight. Once this has been completed, the contribution margin
(CM) can be calculated by subtracting the variable costs highlighted in Table 1 from the annual
revenue (Gallo, A., 2017). Then the contribution margin percentage (CMP) is found by dividing
the CM by the annual revenue (LaMarco, N., 2018). Both values are shown in Table 1.
Table 1
Cost Months Flights Total Annual CM CMP
Sale Price Per Flight $175.00 894 $156,450.00 $40,230.00 25.71%

Monthly Loan Payment -$350.00 12 -$4,200.00
Year 1 Fuel Per Flight -$100.00 894 -$89,400.00
(894 Flights) Employee Monthly Salary -$2,500.00 12 -$30,000.00
Boat Crew Per Flight -$30.00 894 -$26,820.00
Monthly Dock and Office Fee -$500.00 12 -$6,000.00
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Equation 1
175𝑥 − [ 12(350 + 2500 + 500) + 𝑥(100 + 30)] ≥ 0
Similarly, the values for the second year are shown in Table 2. This year was intended as
a break-even analysis as well, so the total addition must be equal to or greater than zero as shown
in Equation 2. The three dollars and the fifty-cent numbers were determined by multiplying the
flight cost by two percent to account for the referrals that the company would be experiencing.
Once again, the CM was calculated using the subtraction of the variable costs highlighted in
Table 2 from the annual revenue (Gallo, A., 2017). And following suit, the CMP was found by
dividing that number by the annual revenue (LaMarco, N., 2018). Both values are shown in
Table 2. The number of flights was determined to be 968.7 by Equation 2 and was rounded up to
969. This meant that the break-even sales could be found by multiplying the price of a flight by
the break-even number of flights which gives $169,575.00 as shown in Table 2.
Table 2

Fuel Per Flight -$100.00 969 -$96,900.00
Year 2
Employee Monthly Salary -$2,500.00 12 -$30,000.00
(969 Flights)
Referral Cost Per Flight -$3.50 969 -$3,391.50
Equation 2
175𝑥 − [ 12(350 + 2500 + 500) + 𝑥(100 + 30 + 3. 5)] ≥ 0

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Lastly, the third year report can be found in Table 3. This time the summation of costs
and revenues is required to give a profit of ten thousand dollars. Therefore, since the inputs have
not changed, Equation 3 matches Equation 2 except instead of reaching zero, the equation must
be equivalent to or greater than ten thousand. Just as before, the variable in Equation 3 is for the
number of flights that the company will sell that year. Once the equation is solved for x, we can
see that the company will have to sell a minimum of 1210 flights to achieve a profit of ten
thousand dollars.
Table 3

Fuel Per Flight -$100.00 1210 -$121,000.00
Year 3
Employee Monthly Salary -$2,500.00 12 -$30,000.00
(1210 Flights)
Referral Cost Per Flight -$3.50 1210 -$4,235.00
Equation 3
175𝑥 − [ 12(350 + 2500 + 500) + 𝑥(100 + 30 + 3. 5)] ≥ 10000
While the analysis gives a good representation of the financial future of the parasailing
company, some factors were certainly overlooked or omitted in the preparation of the document.
There was no mention of taxes of any sort, which could have an effect on the bottom line.
Additionally, the equipment should not be assumed as unbreakable, so a budget for servicing and
repairing equipment should be considered. Also, given the nature of the business, there must be
certain licenses or certifications required for operation, and those should be included in a full
financial report. At the end of the day, given a contribution margin percentage of 23.71%, the
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company seems profitable enough for the bank to consider approving the loan. In order to make
the ten thousand dollars in profit from year three, the company would have to average less than
three-and-a-half flights per day. This should be completely possible, with large opportunities for
growth in the future.
Conclusion
In summary, the parasailing company expansion should be a great success based on the
projected sales and costs. Each year predicts a positive contribution margin percentage given a
sufficient number of sales, which shows that the company has the potential for growth and
significant profit creation. Once each year has all of the contributing factors added up, the
analysis is quite simple, and the number of flights needed per day seems quite reasonable for a
newly opened branch of the company. Based on this information it is highly recommended that
the bank approve the loan for the parasailing company.

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References
Chron Contributor, (2021, March 8). Advantages or Disadvantages of Contribution Margin
Analysis. Chron. Retrieved February 15, 2023, from:
https://smallbusiness.chron.com/advantages-disadvantages-contribution-margin-analysis-
65329.html
Gallo, A. (2017, October 13). Contribution Margin: What It Is, How to Calculate It, and Why
You Need It. Harvard Business Review. Retrieved February 15, 2023, from:
https://hbr.org/2017/10/contribution-margin-what-it-is-how-to-calculate-it-and-why-you-
need-it
LaMarco, N. (2018, August 29). What is a Contribution Margin Percent?. Chron. Retrieved
February 15, 2023, from:
https://smallbusiness.chron.com/contribution-margin-percent-17724.html

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1

Parasailing Financial Report

Department of Business, University of the People

BUS 5110: Managerial Accounting

Dr. Pankaj Chaudhari

February 15, 2023

As the owner of a parasailing company, it is important to ensure the financial stability of

Cost Months Flights Total Annual CM CMP

Sale Price Per Flight $175.00 894 $156,450.00 $40,230.00 25.71%

175𝑥 − [ 12(350 + 2500 + 500) + 𝑥(100 + 30)] ≥ 0

the break-even number of flights which gives $169,575.00 as shown in Table 2.

Cost Months Flights Total Annual CM CMP

175𝑥 − [ 12(350 + 2500 + 500) + 𝑥(100 + 30 + 3. 5)] ≥ 0

Cost Months Flights Total Annual CM CMP

175𝑥 − [ 12(350 + 2500 + 500) + 𝑥(100 + 30 + 3. 5)] ≥ 10000

growth in the future.

the bank approve the loan for the parasailing company.

Chron Contributor, (2021, March 8). Advantages or Disadvantages of Contribution Margin

Analysis. Chron. Retrieved February 15, 2023, from:

February 15, 2023, from:

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