CVP assignment

Use two pieces of graph paper using the exact same Axis units so that both graphs can be compared to each other.

The lines on the graph will be similar but the slope of the total cost line line will be LESS STEEP for the improved case.

Using Chapter 7 problem 7.6 apply C-V-P principles.

P7.6
Two entrepreneurs are contemplating purchasing one of two similar
competitive motels and have asked for your advice. Present sales revenue
of each motel is $550,000 per year.
Where we are NOW:
Jacks
motel has annual variable costs of 55% of sales revenue and fixed costs of $212,500;
Jocks
motel has annual variable costs of 60% of sales revenue and fixed costs of $185,000.
This is what the entrepreneurs believe can be accomplished if they buy and operate either property:
Assumption for Jack’s motel:
The entrepreneurs think that, if they purchased Jacks
motel, they could save $12,000 a year on interest expense (a fixed
cost).
AND
they think that sales revenue can be increased by 25% a year.
Assumption for Jock’s motel:
Alternatively, if they purchased Jocks motel, they could improve
staff scheduling to the point that the wage saving would reduce
total variable cost to 54%.
AND
they think that sales revenue can be increased by 25% a year.

Calculate:
The present net income of each motel, where we are now.
Then, given these assumptions, calculate where will be.

Advise the entrepreneurs which one they should buy –  IN CLASS, we found
that the Jock Motel property was the better option. As there was much improved upside after they took over.
Give some cautionary comments regarding their assumptions.