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20 January, 09:11

Rumba Dance Hall is considering offering a wedding reception package that includes the ballroom rental, decorations, a wedding cake, punch, and paper goods for $6,000. Currently, the company is renting the ballroom with no extras at $4,500. The extras will cost $800. Determine if the new package is profitable and by how much.

A. Cannot be determined from the information given.

B. Increases profits by $700.

C. Increases profits by $800.

D. Decreases profits by $800.

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  1. 20 January, 09:22
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    B) Increases profits by $700.

    Explanation:

    We must perform an incremental analysis of the costs and revenues generated by the alternative course of action which is offering the package:

    Current income:

    ballroom rent $4,500

    extras $800

    total current income = $5,300

    Alternative action income:

    wedding package $6,000

    opportunity cost ballroom rent $4,500

    opportunity cost extras $800

    net income increase = $700
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