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Larries, the Knight is a bookstore specializing in J. R. R. Tolkien and other fantasy literature. Recently, the bookstore has taken on a side business
Larries, the Knight is a bookstore specializing in J. R. R. Tolkien and other fantasy literature. Recently, the bookstore has taken on a side business in New Jersey package tours of the places where the filming for the movie trilogy took place. The last three years results follow: Year 2017 2018 2019 Sales in units (tours) 4,500 5,000 3,500 Sales Revenue ( $5,300 a tour) $ 23,850,000 $ 26,500,000 $ 18,550,000 Expenses Travel costs $ 3,850,000 $ 3,700,000 $ 3,550,000 Meals and lodging 6,950,000 7,500,000 5,250,000 Guide salaries, and exp. 5,350,000 6,000,000 5,400,000 Insurance 1,600,000 1,600,000 1,600,000 Advertising 2,000,000 2,000,000 2,000,000 Net Operating Income $ 4,100,000 $ 5,700,000 $ 750,000 The budget is being written up for the 2020 season, in which demand is expected to head back up, and the expected number of tours sold is 4700. In order to estimate net operating income for 2020, an analysis of the costs of doing business so far needs to be done. Assuming that the last three years costs can be used (they are typical and carefully compiled), Identify each of the company's expenses as either a pure variable, a mixed, or a fixed expense. Using the hi-lo method, separate each of the mixed expenses into fixed and variable elements. Redo the company's expense totals (for all the expenses separately) at the 4700 units sales level, and use it to estimate net operating income. Finally, since the company expects to be able to sell 5,300 tours in 2021, what would you say they should estimate their operating income for that year to be, given the data
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