Internet Exercise #1

Carnival Cruise Lines Inc. owns and operates a fleet of cruise ships. A common activity measure in the cruise industry is passenger cruise-days. For example, a family of four on a five-day cruise would be counted as 20 passenger cruise-days. Using information contained in the company’s 2002 Annual Report, its passenger cruise-days for 2002 and 2001 can be calculated as follows:

1. As noted in the Company’s 2002 Annual Report, available lower berth days “represents the total annual passenger capacity, assuming two passengers per cabin that our ships offered for sale, which is computed by multiplying passenger capacity by ship operating days.”
2. As noted in the Company’s 2002 Annual Report, “in accordance with cruise industry practice, occupancy percentage is calculated based upon two passengers per cabin even though some cabins can accommodate three or more passengers.” As such, these percentages, which exceed 100%, indicate that some cabins were occupied by more than two passengers.
3. Calculated by multiplying available lower berth days by occupancy percentages.

Many of the expenses of cruise ships (e.g., the costs of food served to passengers) vary with the number of passenger cruise-days. Obtain the company’s operating, selling and administrative, and depreciation and amortization expense figures for fiscal 2002 and 2001. (Access the company’s Annual Report on Form 10-K using the EDGAR Company Search section of the U.S. Securities and Exchange Commission’s website at http://www.sec.gov/edgar/searchedgar/companysearch.html Enter the company name, click on the Find Companies button, select the html link for the10-K Annual Report that was filed with the SEC on 2/18/02, click on Document 1, and then scroll down to the consolidated statement of operations (that is, the income statement).)

1. Even though the data you will be using is very limited (only two data points), estimate the fixed and variable components of the company’s costs (that is, the total of its operating, selling and administrative, and depreciation and amortization expenses) using the high-low method.
2. Express, the relationship in terms of the cost formula Y= a + bX, where Y is total cost and X is passenger cruise-days.
3. Calculate the percentage increase in passenger-cruise days from 2001 to 2002. Use that percentage increase to estimate the 2003 passenger-cruise days.
4. Using your estimate of 2003 passenger-cruise days, estimate the company’s costs for 2003 (that is, the total of its operating, selling and administrative, and depreciation and amortization expenses).

Internet Exercise #2

Perform an Internet search using the term, contribution margin. Select and read a case study or article from the results of your search. (Make sure that you do not select an instructor’s lecture notes or a class assignment from the results of your search.) Then, write a brief paper (3 - 5 paragraphs) that summarizes the case study or article. (Your paper should provide the appropriate citation for the article. If necessary, you may wish to refer to the following website, which includes information about citations: http://www.cod.edu/library/research/citenet.htm.)