Question
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
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.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started