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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 (105 seat capacity 40% occupancy $65 ticket price per person) $ 2,730 100 % Variable expenses ($11.00 per person) 462 16.9 Contribution margin 2,268 83.1 % Tour expenses: Tour promotion $ 710 Salary of bus driver 380 Fee, tour guide 680 Fuel for bus 165 Depreciation of bus 420 Liability insurance, bus 210 Overnight parking fee, bus 50 Room and meals, bus driver and tour guide 185 Bus maintenance and preparation 230 Total tour expenses 3,030 Net operating loss $ (762) 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 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? (Input the amount as a positive value.) Profits would by $
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