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 businessfamily, seniors and corporateand 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 yielding profits 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

Thailand Discovery

Malaysian Orienteering

Number of packages sold

10

20

10

Number of people per package

5

6

8

Revenue per person

$18 000

$12 000

$14 000

Direct cost per package:

Tour leader

$5 000

$12 000

$9 000

Tour assistant

2 000

3 000

6 000

Air travel

28 000

30 000

32 000

Accommodation

15 000

26 000

24 000

Equipment hire

4 000

0

9 000

Meals

18 000

15 000

8 000

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. Jack 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:

Salaries

$200 000

Phone

2 000

Depreciation on equipment

5 000

Utilities

2 000

Rent and property taxes

9 000

Other department costs

12 000

Total

$230 000

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.