Local authority (a) Identify and discuss briefly five assumptions underlying cost-volume profit…

Local authority

(a) Identify and discuss briefly five assumptions underlying cost-volume profit analysis.

(b) A local authority, w hose area includes a holiday resort situated on the east coast, operates. for 30 weeks each year, a holiday home which is let to visiting parties of children in care from other authorities. The children are accompanied by their ow n house mothers who supervise them throughout the holiday. From six to fifteen guests are accepted on terms of £100 per person per week. No differential charges exist for adults and children. Weekly costs incurred by the host authority are:

Seasonal staff supervise and carry out the necessary duties at the home at a cost of £11,000 for the 30-week period. This provides staffing sufficient for six to ten guests per week but if eleven or more guests are to be accommodated, additional staff at a total cost of £200 per week are engaged for the whole of the 30-week period. Rent, including rates for the property, is £4,000 per annum and the garden of the home is maintained by the council's recreation department which charges a nominal fee of £1,000 per annum.

You are required to:

(i) tabulate the appropriate figures in such a way as to show the break-even point point(s) and to comment on your figures;

(ii) draw, on graph paper, a chart to illustrate your answer to (b) (i) above.