C6.43 LO 6.7 Job costing; department overhead cost allocation: tour operator Asian Adventure Holidays offers a series of holiday packages aimed at families, seniors and corporate groups. The financial controller, Jack Tallis, is preparing for the annual board meeting and is concerned about the loss that the business sustained in the past year. He has examined the profits for each of the three departments of the business-family, seniors and corporate-and it seems that the corporate department is the source of the problem. Jack has asked you to assist him to look more closely at the three packages offered by the corporate department, to see which holiday packages are profitable and which are not. The three packages are to Thailand, Malaysia and Indonesia. The sales and direct costs of each corporate package for last year are as follows: Bali Adventure Number of packages sold 10 Thailand Discovery 20 Malaysian Orienteering 10 Number of people per package 5 6 8 Revenue per person $27000 $18000 $21000 Direct cost per package: Tour leader Tour assistant $ 7500 3500 $18000 $13500 4500 9000 Air travel 42000 45000 48000 Accommodation 22 500 39000 36000 Equipment hire 6000 0 13500 Meals 27000 22 500 12000 To calculate the profitability of each package, a proportion of the overhead costs of running the corporate department needs to be allocated to the three packages. Tallis has suggested that these costs could be allocated to each package in proportion to actual sales revenue. For last year these overhead costs were as follows: $300000 Salaries Phone 3000 Depreciation on equipment 7500 Utilities 3000 Rent and property taxes 13500 Other department costs 18000 Total $345000 Required 1. Calculate the profit per package and the total profitability of each of the three corporate packages. 2. Compare the profitability of the three corporate packages. 3. Do you consider that the allocation of the corporate department overhead to packages using actual sales revenue is appropriate? Can you suggest a better method? 4. Suggest what actions the company could take in regard to the three corporate packages.