ASA Tours operates a network of offices around the globe specializing in local tours given by local residents and academics. Depending on the year, it operates at between 60 and 70 percent of capacity, which consists of locals who meet the criteria required by ASA. ASA operates three types of tours. Web-based tours consist of live-stream broadcasts with a limit of 15 participants. Group tours consist of small groups of no more than eight people. Finally. there are individual tours, which are personalized tours for no more than six people. Segmented income statements for a typical month appear as follows: Routes Web-Based Group Individual Sales $ 107,800 $ 275,600 $ 181,600 Variable costs 23,600 216,800 101,800 Fixed costs allocated to tours 35,396 89,092 59,012 Operating profit (loss) $ 48,804 $ (30,292) $ 20,788 ASA is considering dropping the group tours. If these tours are dropped, the revenue associated with the tours would be lost and the related variable costs saved. In addition, the company’s total fixed costs would be reduced by 35 percent. Required: a-1. Prepare a differential cost schedule. a-2. Should ASA Tours drop the group tours? b. Are there other factors you would recommend ASA Tours consider before making the decision?
ASA Tours operates a network of offices around the globe specializing in local tours given by local residents and academics. Depending on the year, it operates at between 60 and 70 percent of capacity, which consists of locals who meet the criteria required by ASA. ASA operates three types of tours. Web-based tours consist of live-stream broadcasts with a limit of 15 participants. Group tours consist of small groups of no more than eight people. Finally. there are individual tours, which are personalized tours for no more than six people.
Segmented income statements for a typical month appear as follows:
| Routes | Web-Based | Group | Individual |
|---|---|---|---|
| Sales | $ 107,800 | $ 275,600 | $ 181,600 |
| Variable costs | 23,600 | 216,800 | 101,800 |
| Fixed costs allocated to tours | 35,396 | 89,092 | 59,012 |
| Operating |
$ 48,804 | $ (30,292) | $ 20,788 |
ASA is considering dropping the group tours. If these tours are dropped, the revenue associated with the tours would be lost and the related variable costs saved. In addition, the company’s total fixed costs would be reduced by 35 percent.
Required:
a-1. Prepare a differential cost schedule.
a-2. Should ASA Tours drop the group tours?
b. Are there other factors you would recommend ASA Tours consider before making the decision?
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