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Blueline Tours, Inc., operates tours throughout the United States. A study has indicated that some of the tours are not profitable, and consideration is being
Blueline Tours, Inc., operates tours throughout the United States. A study has indicated that some of the tours are not profitable, and consideration is being given to dropping these tours to improve the companys overall operating performance. One such tour is a two-day Historic Mansions bus tour conducted in the southern states. An income statement from a typical Historic Mansions tour is given below: Ticket revenue (100 seat capacity 40% occupancy $75 ticket price per person) $3,000 100% Variable expenses ($22.50 per person) 900 30 Contribution margin 2,100 70% Tour expenses: Tour promotion $600 Salary of bus driver 350 Fee, tour guide 700 Fuel for bus 125 Depreciation of bus 450 Liability insurance, bus 200 Overnight parking fee, bus 50 Room and meals, bus driver and tour guide 175 Bus maintenance and preparation 300 Total tour expenses 2,950 Net operating loss $(850) The following additional information is available about the tour: a.Bus drivers are paid fixed annual salaries; tour guides are paid for each tour conducted. b.The Bus maintenance and preparation cost on the previous page is an allocation of the salaries of mechanics and other service personnel who are responsible for keeping the companys fleet of buses in good operating condition. c.Depreciation of buses is due to obsolescence. Depreciation due to wear and tear is negligible. d.Liability insurance premiums are based on the number of buses in the companys fleet. e.Dropping the Historic Mansions bus tour would not allow Blueline Tours to reduce the number of buses in its fleet, the number of bus drivers on the payroll, or the size of the maintenance and preparation staff. Required: By how much will the profits increase or decrease if this tour is discontinued
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