Dropping or Retaining Product Lines & Other Segments: There are two ways to determine whether to drop or retain a product or other segment. Example 1:1 Skyline Tours operates bus tours throughout the United States. A study has indicated that some of the tours are not profitable and the company is considering dropping these tours to improve the company's profitability. One of the tours in question is the Reptile Special tour of South Georgia swamps. An income statement for this tour is provided below. Average Occupancy: 40 Seats Ticket Revenue $ 3,000 Customer meals 900 Tour promotions 600 Salary of bus driver 350 Fee, tour guide 700 Fuel for bus 125 Depreciation on bus 450 Insurance on bus Overnight parking fee Room/meals for driver & guide Bus maintenance Total expenses 200 50 175 300 $ 3,850 Net operating loss $ (850) . Bus drivers are paid fixed salaries and their salaries allocated based on the number of tours they serve, tour guides are paid for each tour conducted. . Bus maintenance and insurance is determined by averaging these costs over the number of bus tours the company conducts. Dropping the Reptile Special would not allow the Company to reduce the number of buses in the fleet, the number of drivers on payroll, or the size of the maintenance staff. The company does not have a shortage of buses for other tours. Should the company drop the Reptile Special tour? If unavoidable costs are higher than the net operating income, it means that this product or service has a positive segment margin and is paying for its traceable costs and some common fixed costs. Therefore, it shouldn't be dropped. Chapter 13, Page - 13