Assignment 1
Lundi Resort is a favourite family destination on hot summer days. During the summer, Lundi
draws an average of 10 000 patrons per week. Forty percent of the park’s patrons are adults and
the remaining 60% are children. The price of admission to Lundi is $150 for adults and $100 for
children. Once inside the park, the average adult spends $80 on food and drinks, and the average
child spends $50 on food and drinks. Management of Lundi Resort further estimates that it costs
$60 000 per week to operate the resort (for staff, water and advertising) if there are 12 500 or fewer
patrons and $65 000 per week if there are more than 12 500 patrons. The resort can accommodate
a maximum of 17 500 patrons per week. Finally, management estimates that for every $10 patrons
spend on food and drinks, it costs the park $5 to buy the food and drinks. Management is
considering whether to offer a special for the coming week. Lundi has run two kinds of specials.
The first is a “kids free” week. Under this option, each paying adult can take a child, free of charge,
into the resort. The special will cost nothing to advertise as management knows that word will get
out quickly. Management also expects the following:

Park attendance will increase by 6 000 patrons, to 16 000 patrons for the coming week

Fifty percent, or 8 000, of the patrons will be adults and the remaining 50% will be children

A paying adult will accompany each child
Management calculates that this option will lead to weekly profit of $1 070 000, an increase of
$160 000 over the current weekly profit of $910 000.
The second option is to run additional radio advertising. Under this option, management would
run the usual one-minute advert six more times per day on a local FM station. The extra spots will
cost $16 800. Management expects attendance to increase by 1 000 patrons (to 11 000) patrons)
for the week. Similar to the average week, management expects 40% of these patrons to be adults.
Under this option, management calculates that weekly profit would decrease from $91 000 to $89
000.
Required:
a) What is Lundi Resort’s decision problem, including its goals? (4 marks)
b) What are Lundi Resort’s options for the coming weeks?
(6 marks)
c) What are the costs and benefits of each option? (5 marks)
d) What is the value and opportunity cost of each option?
(6
marks)
e) What should Lundi Resort do this coming week?
(4 marks)
Assignment 2
a) It has been stated that companies do not have profitable products, only profitable customers.
Many companies have placed emphasis on customer profitability analysis in order to increase their
earnings and returns to shareholders. Critically appraise the value of customer profitability analysis
as a means of increasing earnings per share and returns to shareholders.
(10 marks)
b) Evaluate the following statement: “A company should stop selling products to a customer that
has been identified as unprofitable.”
(5 marks)
c) Bill Ltd buys a product in bulk from manufacturers, repackages the product into smaller packs
and then sells the packs to retail customers. The retail customers vary in size and consequently,
the size and frequency of their orders also varies. Some customers order large quantities from Bill
each time they place an order. Other customers order only a few packs each time. Bill is unaware
of the costs of servicing individual customers. However, Bill has now decided to investigate the
use of customer account profitability analysis. The information for two customers, A and B, and
for the whole company was as follows:
Customer
A
B
75
40.5
450
Packs sold (000)
50
27
300
Sales visits to customers
24
12
200
Orders placed by customers
75
20
700
Normal deliveries to customers
45
15
240
Urgent deliveries to customers
5
0
30
Contribution ($000)
Company
Number of:
Activity Costs
$000s
Sales visits to customers
50
Processing orders placed by customers
70
Normal deliveries to customers
120
Urgent deliveries to customers
60
Required:
Prepare a customer profitability analysis of each of the two customers.
(10 marks)