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ACCT 386 - Week 7 - Homework - Question 1

ACCT 386 - Week 7 - Homework - Question 1
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ACCT 386 - Week 7 - Homework - Question 1

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Question 1

Blueline Tours, Inc., operates tours throughout the United States. A study has indicated that some of the tours are not profitable, and consideration is being given to dropping these tours to improve the company’s overall operating performance.

     One such tour is a two-day Historic Mansions bus tour conducted in the southern states. An income statement from a typical Historic Mansions tour is given below:

 

 

 

 

 

  Ticket revenue (105 seat capacity × 40%
    occupancy × $70 ticket price per person)

$

2,940  

100

%

  Variable expenses ($15.00 per person)

 

630  

21.4

 

 





  Contribution margin

 

2,310  

78.6

%

 









  Tour expenses:

 

 

 

 

     Tour promotion

$

690  

 

 

     Salary of bus driver

 

390  

 

 

     Fee, tour guide

 

720  

 

 

     Fuel for bus

 

160  

 

 

     Depreciation of bus

 

530  

 

 

     Liability insurance, bus

 

150  

 

 

     Overnight parking fee, bus

 

60  

 

 

     Room and meals, bus driver and tour guide

 

175  

 

 

     Bus maintenance and preparation

 

210  

 

 

 



 

 

  Total tour expenses

 

3,085  

 

 

 



 

 

  Net operating loss

$

(775) 

 

 

 





 

 


The following additional information is available about the tour:

a.

Bus drivers are paid fixed annual salaries; tour guides are paid for each tour conducted.

b.

The “Bus maintenance and preparation” cost on the previous page is an allocation of the salaries of mechanics and other service personnel who are responsible for keeping the company’s fleet of buses in good operating condition.

c.

Depreciation of buses is due to obsolescence. Depreciation due to wear and tear is negligible.

d.

Liability insurance premiums are based on the number of buses in the company’s fleet.

e.

Dropping the Historic Mansions bus tour would not allow Blueline Tours to reduce the number of buses in its fleet, the number of bus drivers on the payroll, or the size of the maintenance and preparation staff.