contemporary management accounting

C6.43 Job costing; department overhead cost allocation: tour operator LO 6.79 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 business-family, seniors and corporate-and 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 Page 285 profitable 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 20 10 Number of people per package 5 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 9 000 Meal 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. Tallis 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: 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. Tallis 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