A. Island View Company operates tour boats. Its predicted operations for the year are as follows: Sales (1,000 tours per year) P 400,000 Costs: Variable P 250 per tour Fixed P 100,000 per year The company has received a request to offer 100 tours for P 300 each. Island View has plenty of capacity to do these tours in addition to its regular business. Doing these tours would not affect the company’s regular sales or its fixed costs. Required: (Support your answers by showing your computations.) 1. Should the company do the special tours for P 300 per tour? 2. What is the effect of the decision on the company’s operating profit?
A. Island View Company operates tour boats. Its predicted operations for the year are as follows: Sales (1,000 tours per year) P 400,000 Costs: Variable P 250 per tour Fixed P 100,000 per year The company has received a request to offer 100 tours for P 300 each. Island View has plenty of capacity to do these tours in addition to its regular business. Doing these tours would not affect the company’s regular sales or its fixed costs. Required: (Support your answers by showing your computations.) 1. Should the company do the special tours for P 300 per tour? 2. What is the effect of the decision on the company’s operating profit?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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A. Island View Company operates tour boats. Its predicted operations for the year are as follows:
Sales (1,000 tours per year) P 400,000
Costs:
Variable P 250 per tour
Fixed P 100,000 per year
The company has received a request to offer 100 tours for P 300 each. Island View has plenty of capacity to do these tours in addition to its regular business. Doing these tours would not affect the company’s regular sales or its fixed costs. Required: (Support your answers by showing your computations.)
1. Should the company do the special tours for P 300 per tour?
2. What is the effect of the decision on the company’s operating profit?
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