Beginner Advanced Revenues (1,000 × $900; 800 × $1,650) Operating costs $900,000 $1,320,000 Administrative salaries 240,000 200,000 Guide wages 260,000 760,000 Supplies Depreciation of equipment 200,000 100,000 50,000 120,000 Vehicle fuel 60,000 48,000 Allocated corporate overhead Total operating costs Operating income (loss) 90,000 800,000 132,000 1,460,000 $ (140,000) $100,000 1. If the Advanced tours are discontinued, one administrative position could be eliminated, saving the company $100,000. Assuming no change in the sales of Beginner tours, what effect would dropping the Advanced tour have on the company's operating income? 2. Refer back to the original data. If Nelson River Tours drops the Advanced tours, Baldwin estimates that sales of Beginner tours would increase by 50%. He believes that he could still eliminate the $100,000 ad- ministrative position. Equipment currently used for the Advanced tours would be used by the additional Beginner tours. Should Baldwin drop the Advanced tour? Explain. 3. What additional factors should Baldwin consider before dropping the Advanced tours? Required
Beginner Advanced Revenues (1,000 × $900; 800 × $1,650) Operating costs $900,000 $1,320,000 Administrative salaries 240,000 200,000 Guide wages 260,000 760,000 Supplies Depreciation of equipment 200,000 100,000 50,000 120,000 Vehicle fuel 60,000 48,000 Allocated corporate overhead Total operating costs Operating income (loss) 90,000 800,000 132,000 1,460,000 $ (140,000) $100,000 1. If the Advanced tours are discontinued, one administrative position could be eliminated, saving the company $100,000. Assuming no change in the sales of Beginner tours, what effect would dropping the Advanced tour have on the company's operating income? 2. Refer back to the original data. If Nelson River Tours drops the Advanced tours, Baldwin estimates that sales of Beginner tours would increase by 50%. He believes that he could still eliminate the $100,000 ad- ministrative position. Equipment currently used for the Advanced tours would be used by the additional Beginner tours. Should Baldwin drop the Advanced tour? Explain. 3. What additional factors should Baldwin consider before dropping the Advanced tours? Required
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Dropping a product line, selling more tours. Nelson River Tours, a division of Old World Travel, offers two types of guided fishing tours, Beginner and Advanced. Operating income for each tour type in 2017 is as follows:
The equipment has a zero disposal value. Guide wages, supplies, and vehicle fuel are variable costs with respect to the number of tours. Administrative salaries are fixed costs with respect to the number of tours. Dennis Baldwin, Nelson River Tours’ president, is concerned about the losses incurred on the Advanced tours. He is considering dropping the Advanced tour and offering only the Beginner tour.
Transcribed Image Text:Beginner
Advanced
Revenues (1,000 × $900; 800 × $1,650)
Operating costs
$900,000
$1,320,000
Administrative salaries
240,000
200,000
Guide wages
260,000
760,000
Supplies
Depreciation of equipment
200,000
100,000
50,000
120,000
Vehicle fuel
60,000
48,000
Allocated corporate overhead
Total operating costs
Operating income (loss)
90,000
800,000
132,000
1,460,000
$ (140,000)
$100,000
Transcribed Image Text:1. If the Advanced tours are discontinued, one administrative position could be eliminated, saving the
company $100,000. Assuming no change in the sales of Beginner tours, what effect would dropping the
Advanced tour have on the company's operating income?
2. Refer back to the original data. If Nelson River Tours drops the Advanced tours, Baldwin estimates that
sales of Beginner tours would increase by 50%. He believes that he could still eliminate the $100,000 ad-
ministrative position. Equipment currently used for the Advanced tours would be used by the additional
Beginner tours. Should Baldwin drop the Advanced tour? Explain.
3. What additional factors should Baldwin consider before dropping the Advanced tours?
Required
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