Question

Golden Tours, Inc., operates tours throughout the United States. A study has indicated that some of...

Golden 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 (110 seat capacity × 40% occupancy × $55 ticket price per person) $ 2,420 100 % Variable expenses ($11 per person) 484 20 % Contribution margin $ 1,936 80 % Tour expenses: Tour promotion $ 550 Salary of bus driver 230 Fee, tour guide 590 Fuel for bus 100 Depreciation of bus 230 Liability insurance, bus 100 Overnight parking fee, bus 50 Room and meals, bus driver and tour guide 150 Bus maintenance and preparation 190 Total tour expenses 2,190 Net operating loss $ (254) 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 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 Golden 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. Required: By how much will the profits increase or decrease if this tour is discontinued?

Business   Accounting   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1
Golden Tours, Inc.
Historic Mansions Tour
Continue Tour Discontinue
Tour		 Increase (decrease) in profits
Sales 2420 0 -2420
Variable expenses 484 0 484
Contribution margin 1936 0 -1936
Tour expenses:
Tour promotion 550 0 550
Salary of bus driver 230 230 0
Fee, tour guide 590 0 590
Fuel for bus 100 0 100
Depreciation of bus 230 230 0
Liability insurance, bus 100 100 0
Overnight parking fee, bus 50 0 50
Room and meals, bus driver and tour guide 150 0 150
Bus maintenance and preparation 190 190 0
Total tour expenses 2190 750 1440
Net operating income (loss) -254 -750 -496

If the tour is discontinued, profits will decrease by $496.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Dropping or Retaining a Tour A study has indicated that some of the bus tours operated...
Dropping or Retaining a Tour A study has indicated that some of the bus tours operated by Clear Water Tours Inc. are not profitable. As a result, consideration is being given to dropping these unprofitable tours to improve the company's overall operating performance. One such tour is a three-day Majestic Islands bus tour. Additional information and an income statement from a typical Majestic Islands tour are given below. The following additional information is available about the tour: Bus drivers are...
have been decreasing for several years at Pegasus Airlines. In an effort to improve the company’s...
have been decreasing for several years at Pegasus Airlines. In an effort to improve the company’s performance, the company is thinking about dropping several flights that appear to be unprofitable. A typical income statement for one round-trip of one such flight (flight 482) is as follows: Ticket revenue (195 seats × 40% occupancy × $230 ticket price) $ 17,940 100.0 % Variable expenses ($19.00 per person) 1,482 8.3 Contribution margin 16,458 91.7 % Flight expenses: Salaries, flight crew $ 1,900...
Profits have been decreasing for several years at Pegasus Airlines. In an effort to improve the...
Profits have been decreasing for several years at Pegasus Airlines. In an effort to improve the company’s performance, the company is thinking about dropping several flights that appear to be unprofitable. A typical income statement for one round-trip of one such flight (flight 482) is as follows: Ticket revenue (175 seats × 40% occupancy × $230 ticket price) $ 16,100 100.0 % Variable expenses ($17.00 per person) 1,190 7.4 Contribution margin 14,910 92.6 % Flight expenses: Salaries, flight crew $...
Problem 12-21 Dropping or Retaining a Flight [LO12-2] Profits have been decreasing for several years at...
Problem 12-21 Dropping or Retaining a Flight [LO12-2] Profits have been decreasing for several years at Pegasus Airlines. In an effort to improve the company’s performance, consideration is being given to dropping several flights that appear to be unprofitable.          A typical income statement for one round-trip of one such flight (flight 482) is as follows:   Ticket revenue (100 seats × 40%     occupancy × $65 ticket price) $ 2,600 100 %   Variable expenses ($15.00 per person) 600 23.1   Contribution margin...
Profits have been decreasing for several years at Pegasus Airlines. In an effort to improve the...
Profits have been decreasing for several years at Pegasus Airlines. In an effort to improve the company’s performance, the company is thinking about dropping several flights that appear to be unprofitable. A typical income statement for one round-trip of one such flight (flight 482) is as follows: Ticket revenue (170 seats × 40% occupancy × $200 ticket price) $ 13,600 100.0 % Variable expenses ($18.00 per person) 1,224 9 Contribution margin 12,376 91 % Flight expenses: Salaries, flight crew $...
Profits have been decreasing for several years at Pegasus Airlines. In an effort to improve the...
Profits have been decreasing for several years at Pegasus Airlines. In an effort to improve the company’s performance, the company is thinking about dropping several flights that appear to be unprofitable. A typical income statement for one round-trip of one such flight (flight 482) is as follows: Ticket revenue (195 seats × 40% occupancy × $210 ticket price) $ 16,380 100.0 % Variable expenses ($17.00 per person) 1,326 8.1 Contribution margin 15,054 91.9 % Flight expenses: Salaries, flight crew $...
Problem 12-21 Dropping or Retaining a Flight [LO12-2] Profits have been decreasing for several years at...
Problem 12-21 Dropping or Retaining a Flight [LO12-2] Profits have been decreasing for several years at Pegasus Airlines. In an effort to improve the company’s performance, the company is thinking about dropping several flights that appear to be unprofitable. A typical income statement for one round-trip of one such flight (flight 482) is as follows: Ticket revenue (195 seats × 40% occupancy × $200 ticket price) $ 15,600 100.0 % Variable expenses ($18.00 per person) 1,404 9 Contribution margin 14,196...
Profits have been decreasing for several years at Pegasus Airlines. In an effort to improve the...
Profits have been decreasing for several years at Pegasus Airlines. In an effort to improve the company’s performance, consideration is being given to dropping several flights that appear to be unprofitable.          A typical income statement for one round-trip of one such flight (flight 482) is as follows:   Ticket revenue (110 seats × 40%     occupancy × $60 ticket price) $ 2,640 100 %   Variable expenses ($13.00 per person) 572 21.7   Contribution margin 2,068 78.3 %   Flight expenses:      Salaries, flight crew...
Profits have been decreasing for several years at Pegasus Airlines. In an effort to improve the...
Profits have been decreasing for several years at Pegasus Airlines. In an effort to improve the company’s performance, consideration is being given to dropping several flights that appear to be unprofitable.          A typical income statement for one round-trip of one such flight (flight 482) is as follows:   Ticket revenue (110 seats × 40%     occupancy × $70 ticket price) $ 3,080 100 %   Variable expenses ($14.00 per person) 616 20   Contribution margin 2,464 80 %   Flight expenses:      Salaries, flight crew...
Profits have been decreasing for several years at Pegasus Airlines. In an effort to improve the...
Profits have been decreasing for several years at Pegasus Airlines. In an effort to improve the company’s performance, consideration is being given to dropping several flights that appear to be unprofitable.          A typical income statement for one round-trip of one such flight (flight 482) is as follows:   Ticket revenue (105 seats × 40%     occupancy × $70 ticket price) $ 2,940 100 %   Variable expenses ($11.00 per person) 462 15.7   Contribution margin 2,478 84.3 %   Flight expenses:      Salaries, flight crew...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT