To calculate the profitability of each package, a proportion of the overhead costs of running the corporate department needs to be allocated to the three packages.Tallis has suggested that these costs could be allocated to each package in proportion to actual sales revenue. For last year these overhead costs were as follows:Salaries$200 000Phone2 000Depreciation on equipment5 000Utilities2 000Rent and property taxes9 000Other department costs12 000Total$230 000Required:1. Calculate the profit per package and the total profitability of each of the three corporate packages.2. Compare the profitability of the three corporate packages.3. Do you consider that the allocation of the corporate department overhead to packages using actual sales revenue is appropriate? Can you suggest a bettermethod?4. Suggest what actions the company could take in regard to the three corporate packages. C6.43 Job costing; department overhead cost allocation: tour operator LO 6.72Asian Adventure Holidays offers a series of holiday packages aimed at families, seniors and corporate groups. The financial controller, Jack Tallis, is preparing for theannual board meeting and is concerned about the loss that the business sustained in the past year. He has examined the profits for each of the three departments ofthe business-family, seniors and corporate-and it seems that the corporate department is the source of the problem.Jack has asked you to assist him to look more closely at the three packages offered by the corporate department, to see which holiday packages arePage 285profitable and which are not. The three packages are to Thailand, Malaysia and Indonesia. The sales and direct costs of each corporate package for lastyear are as follows:Bali AdventureThailand DiscoveryMalaysian OrienteeringNumber of packages sold102010Number of people per package568Revenue per person$18 000$12 000$14 000Direct cost per package:Tour leader$ 5 000$12 000$9 000Tour assistant2 0003 0006 000Air travel28 00030 00032 000Accommodation15 00026 00024 000Equipment hire4 0009 000Meals18 00015 0008 000To calculate the profitability of each package, a proportion of the overhead costs of running the corporate department needs to be allocated to the three packages.Tallis has suggested that these costs could be allocated to each package in proportion to actual sales revenue. For last year these overhead costs were as follows:

Profitability of the company is required to be measured so that the company knows and determines…

1. Calculate the profit per package and the total profitability of each of the three corporate packages. 2. Compare the profitability of the three corporate packages. 3. Do you consider that the allocation of the corporate department overhead to packages using actual sales revenue is appropriate? Can you suggest a better method? 4. Suggest what actions the company could take in regard to the three corporate packages.

1. Calculate the profit per package and the total profitability of each of the three corporate packages. 2. Compare the profitability of the three corporate packages. 3. Do you consider that the allocation of the corporate department overhead to packages using actual sales revenue is appropriate? Can you suggest a better method? 4. Suggest what actions the company could take in regard to the three corporate packages.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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