Adventure Expeditions offers guided back-country hiking/camping trips in Colombia Andes. Adventure provides a guide and all necessary food and equipment at a fee of $50 per person per day. Adventure currently provides an average of 600 guide-days per month in June, July, August, and September. Based on available equipment and staff, maximum capacity is 800 guide-days per month. Monthly variable and xed operating costs are as follows:

Variable Costs Per Person Food $ 5 Guide salary 25 Supplies 2 Insurance 8 Total $ 40

Fixed Costs Equipment rental $ 5,000 Administration 5,000 Advertising 2,000 Total $12,000

Required

1. Calculate the contribution margin per person per ride.

2. Determine the effect of each of the following situations on monthly prots. Each situation is to be evaluated independently of all others.

(A.) A $12 increase in the daily fee should result in a 150-unit decrease in monthly sales.

i) Calculate profit decrease from reduced tours if there was no price increase or costs

ii) Calculate profit increase from increase in selling price

iii) Show the increase or decrease in monthly profit.

(B.) A $7 decrease in the daily fee should result in a 300-unit increase in monthly sales. However,

because of capacity constraints, the last 100 guide-days would be provided by subcontracting to

another rm at a cost of $46 per guide-day.

i) Calculate profit increase from increased tours with no changes in prices or costs

ii) Calculate profit decrease from reduction in selling price for all tours

iii) Calculate profit decrease from increase cost of the last 100 tours

iv) Show the increase or decrease in monthly profit.

(C.) A French tour agency has proposed to place a special, one-time order for 75 guide-days at a

reduced fee of $45 per guide-day. The agency would pay all insurance costs. There would be additional xed administrative costs of $200.

Calculate the increase in revenues

Calculate the increase in cost for:

Food Guide tour salary Supplies Administrative

iii) Show increase or decrease in profits.

(D.) An Italian tour agency has proposed to place a special, one-time order for 300 guide-days next

month at a special fee of $40 per guide-day. The agency would pay all insurance costs. There would

be additional xed administrative costs of $200. Assume additional capacity beyond 800 guide-

days is not available.

i) Calculate the increase in revenues

Calculate the increase in cost for:

Food Guide tour salary Supplies Administrative Opportunity cost of lost regular sales

iii) Show increase or decrease in profits.

(E.) An Alberta outdoor supply company has offered to supply all necessary food and camping

equipment at $7.50 per guide-day. This eliminates the current food costs and reduces the monthly

equipment rental costs to $1,800.

Cost to make Cost to buy

Cost to buy

Cost to make:

Food

Equipment rental

Total Costs

What is the advantage or disadvantage of buying

Should the offer be accepted? Why ?

(F.) Clients currently must carry a backpack and assist in camp activities such as cooking. Adventure is

considering the addition of mules to carry all food and equipment and the hiring of college students

to perform camp activities such as cooking. This will increase variable costs by $12 per guide-day

and xed costs by $1,000 per month. However, 600 full-service guide-days per month could now

be sold at $75 each.

Calculate increase in revenue:

Full service Current service Additional costs Variable Fixed

What is the advantage or disadvantage of selling without the inserts?