Question

# Alyeski Tours operates day tours of coastal glaciers in Alaska on its tour boat the Blue...

Alyeski Tours operates day tours of coastal glaciers in Alaska on its tour boat the Blue Glacier. Management has identified two cost drivers—the number of cruises and the number of passengers—that it uses in its budgeting and performance reports. The company publishes a schedule of day cruises that it may supplement with special sailings if there is sufficient demand. Up to 88 passengers can be accommodated on the tour boat. Data concerning the company’s cost formulas appear below:

 Fixed Cost per Month Cost per Cruise Cost per Passenger Vessel operating costs \$ 6,100 \$ 473.00 \$ 3.30 Advertising \$ 2,100 Administrative costs \$ 5,400 \$ 36.00 \$ 1.50 Insurance \$ 3,600

For example, vessel operating costs should be \$6,100 per month plus \$473.00 per cruise plus \$3.30 per passenger. The company’s sales should average \$34.00 per passenger. In July, the company provided 55 cruises for a total of 3,050 passengers.

Required:

Prepare the company’s flexible budget for July.

 Alyeski Tours Flexible Budget for July Revenue \$ 103,700 Expenses Vessel operating cost \$   42,180 Advertising \$    2,100 Administrative cost \$ 11,955 Insurance \$     3,600 Total expenses \$   59,835 Net operating income \$ 43,865

Explanation:

Budgeted revenue = Sales per passenger x No. of passenger = \$ 34 x 3,050 = \$ 103,700

Vessel operating cost = \$ 6,100 + (\$ 473 x 55) + (\$ 3.30 x 3,050)

= \$ 6,100 + \$ 26,015 + \$ 10,065 = \$ 42,180

Administrative cost = \$ 5,400 + (\$ 36 x 55) + (\$ 1.50 x 3,050)

= \$ 5,400 + \$ 1,980 + \$ 4,575 = \$ 11,955

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