Question

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.

Answer 1

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