CODYs PROBLEM

By Section A: Group 8
Akshay Ahuja 5A
Amarjeet Patnaik 6A
Ashutosh Agarwal 13 A
Kasim Najmi 20 A
Pratik Godhane 35 A
Sanjeev Kumar 42 A
CODYS CASE: IMP POINTS
Cody operates shuttle service between Miami,
Florida International airport and Florida keys.
Florida Keys are a bunch of islands: a popular
vacation resort
Florida keys has two important vacation
points:- Key Largo (the upper keys) and Key
west (the lower keys)
Distance from Miami to Key Largo: 80Kms
Distance from Miami to Key west: 200Kms


Cody offers two products:-
One way trip between Miami and Key Largo for $300
One way trip between Miami and Key west for $500
Price is same regardless of the direction and he
does not offer any discount for round travel
Cody receives 15% as gratuities from clients
without exception and he considers this as part
of his personal income rather than business
income.

CODYS CASE: IMP POINTS
One way trip to upper keys takes 2 hours and
hence he can manage 4 one way trips
One way trip to Lower keys takes 3 hours 45
minutes and hence he can manage only 2 one
way trips
Erratic work schedule:-
Peak season: from October 1 to March 31 (6 months)
Off-peak season: April 1 to September 30 (6 months)
During peak season common for Cody to work for
2-3 weeks without break while 3-day week is
equally common during off-peak

CODYS CASE: IMP POINTS
Cody made 400 paid trips to Upper keys and
200 paid trips to Lower keys and out of these
275 and 140 respectively, were during peak
season
Cody drove a total of 100,000 miles and
roughly 62,500 were during peak season.
Total miles driven includes other non-
productive trips as well
CODYS CASE: IMP POINTS
BUSINESS INCOME STATEMENT:









CODYS CASE: IMP POINTS
ITEM AMOUNT
Revenue $220,000
Cost of bus (net of salvage value) ($60,000)
Office operating expenses ($45,000)
Fuel and Oil costs ($30,000)
Bus-related insurance and maintenance
costs ($25,000)
Brochure and advertising costs ($5,000)
business income $55,000
personal income $33,000
Total Income $88,000
Cody purchases a new bus each year for
approximately $85,000 and sells the bus at
$25,000
Cody spends around $0.30 in gas and oil per
mile
Insurance cost= $10,000 are fixed but
maintenance costs amount to $0.15 per mile
Cody earned 15% of total revenue as personal
income.
CODYS CASE: IMP POINTS
a) Which Group Shall Cody take(one going to Lower Keys or
the one going to Upper keys), if he can take only of these
two and return trip will be empty? Also calculate by how
much Codys overall income will increase?
Let us calculate increase in income for both the groups. Here we will take
into account only variable cost involved in both the trips to calculate
increase in overall income for this particular trip.
Lower Keys Upper Keys
Revenue from business 500 300
Revenue from Tip(15%) 75 45
Fuel and Oil Cost(.3$/Mile) -120 -48
Maintenance cost(.15$/Mile) -60 -24
Total Income 395 273
If we were to take only economic aspect into account, Cody should take
Lower Key Group and his total income would increase by 395$.
b) Which Group Shall Cody take(one going to Lower Keys or
the one going to Upper keys), if he can take only of these two
but return trip from Upper keys will not return empty while from
Lower Key will be empty. Also calculate by how much Codys
overall income will increase?
Let us calculate increase in income for both the groups. Here we will take into
account only variable cost involved in both the trips to calculate increase in
overall income for this particular trip.
Lower Keys Upper Keys
Revenue from business 500 300*2=600
Revenue from Tip(15%) 75 90
Fuel and Oil Cost(.3$/Mile) -120 -48
Maintenance cost(.15$/Mile) -60 -24
Total Income 395 618
If we were to take only economic aspect into account, Given new information
Cody should take Lower Key Group and his total income would increase by 618$.
Peak Season Off Season
Upper Keys Lower Keys Upper Keys Lower Keys
Revenue from business 275*300=82500 140*500=70000 125*300=37500 60*500=30000
Revenue from Tip(15%) 12375 10500 5625 4500
Fuel and Oil Cost -18750 -11250
Maintenance cost -9375 -5625
Total Income 147250 60750
Loss Of Income for 7 days 5663.46 2323.77
c) Cody and his wife are planning vacation for a week either
during peak season or off season. How much total income
would Cody have to sacrifice in both cases?
Let us calculate contribution margin statement segmented by trips during peak
season and off season and consider only associated variable costs for this
calculation.
If we were to take only economic aspect into account, Loss for Peak season
would be 5663$ approx and Loss for Off season holiday would be 2324$
approximately.
d) One of Codys friends suggests him to cut prices during off-
season to spur the demand. Specifically his friend believes
that 25% cut in prices during off season would increase
demand by 60%. Calculate increase in income if forecast were
true. (Mileage will increase just by 40%)
Let us calculate contribution margin statement segmented by trips during peak
season and off season and consider only associated variable costs for this
calculation.
Off Season(Normal) Off Season(Friend's advice)
Upper Keys Lower Keys Upper Keys Lower Keys
Revenue from business 125*300=37500 60*500=30000 200*225=45000 96*375=36000
Revenue from Tip(15%) 5625 4500 6750 5400
Fuel and Oil Cost -11250 -15750
Maintenance cost -5625 -7875
Total Income 60750 69525
If we were to take only economic aspect into account, Increase in income would
be only 14.44 % which does not justify a 60% more effort, therefore though
there is increase in profit but it does not go well with 60% more effort.
e) Why a strategy as suggested by Codys friend well for
higher-priced items like airfare and hotels but not work as well
for lower-priced items like a shuttle bus?
Fixed cost is more easily recoverable.
Break-even time is smaller.
It would take much more items to be sold to become profitable.