Grear Rafting Analysis Essay

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Grear Rafting Company is the dream business of Ms. Grear, and has been in operation for one year, and according to the income statement she has provided, she is losing money. Because of her dream to maintain this rafting business, she has come to us for help to get her out of the red. In order to do this, we need to explain variable and fixed costs, period and product costs, and rewrite Grear Rafting’s income statement. Grear Rafting’s income statements is provided below. Grear Rafting Company Income Statement For the Year Ended December 31, 2008 Revenue $1,048,000 Rental Cost of Rafts and Camping Equipment…show more content…
Because of this, Grear Rafting’s operating income results in a net loss. With the Contribution margin income statement, we can find the number of rafters it would take into order for Grear Rafting to reach a break-even income. The total fixed expenses divided by the contribution margin per unit gives us the required output to reach breakeven, but first we must find the contribution margin per unit. The contribution margin divided by the output (a.k.a. the rafters served) gives us a contribution margin per unit of 220. So 278,950(Fixed Expenses) / 220 (Contribution Margin per unit) yields a breakeven output of 1268 rafters. Suggestions Aside from trying to increase output, there are other options to take into consideration in order to reduce the variable expenses. Assuming that the number of rafters serviced is the same, we can take a look not only into the meals provided to the rafters, but also the t-shirts and hats. First, let’s look at the meals. At 1,048 rafters with a total of $314,400 worth of meals paid, that amounts to $300 per rafter for a seven day period. Assuming three meals per day, that’s $14.28 per meal. By bringing that value down to twelve dollars, that would reduce Grear Rafting’s total meals cost by $50,304. If ten dollars per meal were achieved, the reduction would be $94,320. Without changing anything else, by reducing meals to twelve dollars each, Grear Rafting would attain a Net Income of $1914. Now let us look at the t-shirts and

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