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.
Required
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 administrative 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?

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Beginner $900,000 Advanced Revenues (1,000 x $900;800 Operating costs x $1,650) S1,320,000 Administrative salaries Guide wages Supplies Depreciation of equipment Vehicle fuel Allocated corporate overhead 240,000 260,000 100,000 50,000 60,000 90,000 800,000 $100,000 200,000 760,000 200,000 120,000 48,000 132,000 1,460,000 S (140,000) Total operating costs Operating income (loss)