Nelson River Tours, a division of Old World Travel, of- fers two types of guided fishing tours, Beginner and Advanced. Operating income for each tour type in 2017 is as follows: Beginner $900,000 Advanced $1,320,000 Revenues (1,000 x $900; 800 x $1,650) Operating costs Administrative salaries 240,000 200,000 Guide wages Supplies Depreciation of equipment 260,000 760,000 200,000 100,000 50,000 120,000 48,000 132,000 1,460,000 Vehicle fuel 60,000 Allocated corporate overhead Total operating costs 90,000 800,000 S100,000 Operating income (loss) S (140,000) 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 in- curred on the Advanced tours. He is considering dropping the Advanced tour and offering only the Beginner tour.
Nelson River Tours, a division of Old World Travel, of- fers two types of guided fishing tours, Beginner and Advanced. Operating income for each tour type in 2017 is as follows: Beginner $900,000 Advanced $1,320,000 Revenues (1,000 x $900; 800 x $1,650) Operating costs Administrative salaries 240,000 200,000 Guide wages Supplies Depreciation of equipment 260,000 760,000 200,000 100,000 50,000 120,000 48,000 132,000 1,460,000 Vehicle fuel 60,000 Allocated corporate overhead Total operating costs 90,000 800,000 S100,000 Operating income (loss) S (140,000) 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 in- curred on the Advanced tours. He is considering dropping the Advanced tour and offering only the Beginner tour.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
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 administrative position. Equipment currently used for the Advanced tours would be used by the additional Beginner tours. Should Baldwin drop the Advanced tour? Explain.
Transcribed Image Text:Nelson River Tours, a division of Old World Travel, of-
fers two types of guided fishing tours, Beginner and Advanced. Operating income for each tour type in 2017
is as follows:
Beginner
$900,000
Advanced
$1,320,000
Revenues (1,000 x $900; 800 x $1,650)
Operating costs
Administrative salaries
240,000
200,000
Guide wages
Supplies
Depreciation of equipment
260,000
760,000
200,000
100,000
50,000
120,000
48,000
132,000
1,460,000
Vehicle fuel
60,000
Allocated corporate overhead
Total operating costs
90,000
800,000
S100,000
Operating income (loss)
S (140,000)
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 in-
curred on the Advanced tours. He is considering dropping the Advanced tour and offering only the
Beginner tour.
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