Numan Travel plc started trading 10 years ago with its cheap airfare brand Flygo. Since then, it has expanded to offer three different types of holiday: Best Beaches, Cosy Cottages and Great Golfing. The following analysis was performed recently:

Last year, the founder of the business relinquished the position of managing director and became executive chairman. His replacement as MD has suggested that the future of the company lies in the expanding golf sector. Also, because the cheap airfare market is becoming increasingly competitive, he suggests that the company withdraws from that sector. Further analysis reveals the following information:

The contribution is the sales revenue for each brand less the variable costs of operating that brand. Advertising costs are allocated directly to each brand but administration costs have been attached to brands on the basis of the number of reservations. The chairman feels that the MD’s strategy is mistaken but does not wish to appear to be heavy-handed on the basis of nothing more than an instinctive response. His last major act as MD was to instigate a pilot activity-based costing system to run in parallel with their existing absorption system. He wonders if this will provide him with a more convincing argument. So far, the pilot has produced the following activity analysis of the indirect administration costs:........................................................................ £000Reservations/bookings............................. 20,000Holiday repping......................................... 10,000Hotel liaison/contracting............................ 6,000Marketing..................................................... 3600.................................................................... 39,600

Task:Calculate the profit made by each brand using activity-based costing. Comment on the proposed strategy of the new MD.