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Nelson Tours, a division of Old Travel, offers two types of guided fishing tours, Beginner and Advanced. Operating income for each tour type in 2019
Nelson Tours, a division of Old Travel, offers two types of guided fishing tours, Beginner and Advanced. Operating income for each tour type in 2019 is as follows: Revenues (1,000 * $900; 800 * $1,650) Operating costs Administrative salaries Guide wages Supplies Vehicle fuel Depreciation of equipment Total operating costs Allocated corporate overhead Operating income (loss) Beginner Advanced $900,000 1,320,000 240,000 200,000 260,000 760,000 100,000 200,000 50,000 120,000 60,000 48,000 90,000 132,000 800,000 1,460,000 $100,000 $ (140,000) The equipment has a zero disposal value. Guide wages, supplies, and vehicle fuel are variable costs with respect to the number of tours. Administrative salaries are fixed costs with respect to the number of tours. D. Baldwin, Nelson River Tours' president, is concerned about the losses incurred on the Advanced tours. He is considering dropping the Advanced tour and offering only the Beginner tour. Required: 3a. If Nelson River Tours drops the Advanced tours, Baldwin estimates that sales of Beginner tours would increase by 50%. He believes that he could still eliminate the $100,000 administrative position. Equipment currently used for the Advanced tours would be used by the additional Beginner tours. Should Baldwin drop the Advanced tour? Explain. 3b. What additional factors should Baldwin consider before dropping the Advanced tours
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