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 company?s 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 company?s 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 company?s 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: 1. Prepare an analysis showing what the impact will be on the company?s profits if this tour is discontinued. 2. The company?s tour director has been criticized because only about 50% of the seats on Blueline?s tours are being filled as compared to an industry average of 60%. The tour director has explained that Blueline?s average seat occupancy could be improved considerably by eliminating about 10% of its tours, but that doing so would reduce profits. Explain how this could happen. Use Template Attached, Thank you.

Student Name: Class: ACC-350 Problem 12-18 1. BLUELINE TOURS, INC. Analysis of Discontinuing Tour Contribution margin lost if the tour is discontinued Less tour costs that can be avoided if the tour is discontinued: Net decrease in profits if the tour is discontinued BLUELINE TOURS, INC. Alternative Analysis of Discontinuing Tour Ticket revenue Less variable expenses Contribution margin Less tour expenses: Tour promotion Salary of bus driver Fee, tour guide Fuel for bus Depreciation of bus Liability insurance, bus Overnight parking fees, bus Room & meals, bus driver and tour guide Bus maintenance and preparation Total tour expenses Net operating loss Keep the Tour $3,000 900 $2,100 $600 350 700 125 450 200 50 175 300 2,950 $(850) Drop the Tour Difference: Net Operating Income Increase or (Decrease) $(450) Correct! Given Data P12-18: BLUELINE TOURS, INC. Seat capacity Occupancy Ticket price Ticket revenue Variable expenses Contribution margin Tour expenses: Tour promotion Salary of bus driver Fee, tour guide Fuel for bus Depreciation of bus Liability insurance, bus Overnight parking fee, bus Room and meals, bus driver and tour guide Bus maintenance and preparation Total tour expenses Net operating loss 100 40% $75 $3,000 900 2,100 $600 350 700 125 450 200 50 175 300 2,950 $(850) 100.0% 30.0% 70.0% Student Name: Class: Problem 12-21 PIETARSAARI OY 1. Incremental revenue: Fixed fee Reimbursement for costs of production Total incremental revenue Less Incremental costs: Variable production costs Increase in net operating income 2. Sales: Decrease in revenue received Less variable selling expenses avoided if the army's order is accepted Net decrease in net operating income with the army's offer Given Data P12-21: PIETARSAARI OY Ski poles (pairs) produced at capacity Selling price per pair 50,000 32 Per Pair Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling expense Fixed selling expense Total cost 12 3 1 5 2 4 27 Fixed manufacturing overhead within range of 40,000 to 50,000 pairs of ski poles per year Information for 1: Expected number of units to be sold this year Army offer: Units purchased Fixed fee paid per pair Plus all fixed and variable unit manufacturing costs Information for 2: Expected number of units to be sold next year Army offer: Units purchased Fixed fee paid per pair Plus all fixed and variable costs of production Total 600,000 150,000 50,000 250,000 100,000 200,000 1,350,000 250,000 40,000 10,000 4.00 50,000 10,000 4.00 Student Name: Class: Problem 12-23 1. THRIFTY MARKETS, INC. Schedule Gross margin lost if the store is closed Less costs that can be avoided: Direct advertising Sales salaries Delivery salaries Store rent Store management salaries General office salaries Utilities Insurance on inventories Employment taxes* Decrease in company net operating income if the Downtown Store is closed *Salaries avoided by closing store: Sales salaries Delivery salaries Store management salaries General office salaries Total salaries Employment tax rate Employment taxes avoided 3. Computations Gross margin lost if the Downtown Store is closed Gross margin gained at the Uptown Store Net loss in gross margin Less avoidable costs if Downtown Store is closed Net advantage of closing the Downtown Store Given Data P12-23: THRIFTY MARKETS, INC. Income Statement For the Quarter Ended March 31 Sales Cost of goods sold Gross margin Selling and administrative expenses: Selling expenses: Direct advertising General advertising Sales salaries Delivery salaries Store rent Depreciation of store fixtures Depreciation of delivery equipment Total selling expenses Administrative expenses: Store management salaries General office salaries Utilities Insurance on fixtures and inventory Employment taxes General office expenses - other Total administrative expenses Total operating expenses Net operating income (loss) Total $2,500,000 1,450,000 1,050,000 Uptown Store $900,000 513,000 387,000 Downtown Store $600,000 372,000 228,000 Westpark Store $1,000,000 565,000 435,000 118,500 20,000 157,000 30,000 215,000 46,950 27,000 614,450 40,000 7,200 52,000 10,000 70,000 18,300 9,000 206,500 36,000 4,800 45,000 10,000 65,000 8,800 9,000 178,600 42,500 8,000 60,000 10,000 80,000 19,850 9,000 229,350 63,000 50,000 89,800 25,500 36,000 25,000 289,300 903,750 $146,250 20,000 18,000 31,000 8,000 12,000 9,000 98,000 304,500 $82,500 18,000 12,000 27,200 9,000 10,200 6,000 82,400 261,000 $(33,000) 25,000 20,000 31,600 8,500 13,800 10,000 108,900 338,250 $96,750 Additional Data: Manager's salary per quarter New employee's salary per quarter Employment tax as a percentage of salaries Delivery person's salary per quarter Insurance related to downtown fixtures Discharged employee's salary per quarter $18,000 $5,000 12% $7,000 1/3 $8,000 Assumed sales transferred to Uptown store Uptown store gross margin percentage $200,000 43%