1. Merry, the Knight is a bookstore specializing in J. R. R. Tolkien and other fantasy literature. Recently, the bookstore has taken on a side business in New Zealand package tours of the places where the filming for the movie trilogy took place. The last three years results follow: Year 2019 Sales in units (tours) 4,000 Sales Revenue ($ 9,000 a tour) $ 36,000,000 Expenses Travel costs Meals and lodging Guide salaries, and exp. Insurance Advertising Net Operating Income $ 6,350,000 5,880,000 12,200,000 5,620,000 3,650,000 $ 2,300,000 2020 3,500 $ 31,500,000 $ 6,485,000 4,900,000 9,850,000 5,620,000 3,650,000 $ 995,000 2021 5,500 $ 49,500,000 $ 8,985,000 7,700,000 11,250,000 5,620,000 3,650,000 $ 12,295,000 The budget is being written up for the 2022 season, in which demand is expected to stabilize, and the expected number of tours sold is 5300. In order to estimate net operating income for 2022, an analysis of the costs of doing business so far needs to be done. Assuming that the last three years costs can be used (they are typical and carefully compiled), identify each of the company's expenses as either a pure variable, a mixed, or a fixed expense. Using the hi-lo method, separate each of the mixed expenses into fixed and variable elements. Redo the company's expense totals (for all the expenses separately) at the 5300 units sales level, and use it to estimate net operating income. Finally, since the company expects to be able to sell 6,250 tours in 2023, what would you say they should estimate their operating income for that year to be, given the data?

1. Merry, the Knight is a bookstore specializing in J. R. R. Tolkien and other fantasy literature. Recently, the bookstore has taken on a side business in New Zealand package tours of the places where the filming for the movie trilogy took place. The last three years results follow: The budget is being written up for the 2022 season, in which demand is expected to stabilize, and the expected number of tours sold is 5300. In order to estimate net operating income for 2022, an analysis of the costs of doing business so far needs to be done. Assuming that the last three years costs can be used (they are typical and carefully compiled), identify each of the company's expenses as either a pure variable, a mixed, or a fixed expense. Using the hi-lo method, separate each of the mixed expenses into fixed and variable elements. Redo the company's expense totals (for all the expenses separately) at the 5300 units sales level, and use it to estimate net operating income. Finally, since the company expects to be able to sell 6,250 tours in 2023 , what would you say they should estimate their operating income for that year to be, given the data