OBJECTIVE: To enable learners to identify the relevant costs and benefits from costs and revenue information available in the financial database to aid timely decision-making.

REQUIREMENT: Short term decision making

Task 2b: CLO2

Question

Ruby Airlines allows its passengers to join the Ruby Express Club, which entitles travellers to use the Clubs facilities at any Malaysian airport during their flight. In addition to a private lounge and restaurant, club members receive discounts on food and beverages and access to a small health spa.

Like many other airlines worldwide, Ruby Airlines has seen its profits decline due to the COVID-19 pandemic movement restriction. The Club, in particular, has demonstrated a pattern of consistent loss.

The recent statement follows:

Sales revenue	$150,000
Variable expenses: Food and beverages Personnel Variable overhead	(70,000) (40,000) (25,000)
Contribution margin	15,000
Fixed expenses: Club building Depreciation Supervisory salary Airport fees General overhead (allocated)	(30,000) (25,000) (15,000) (10,000)
Profit (loss)	(65,000)

If the Club is no longer operating, its variable expenses can be avoided. On the other hand, Ruby will continue to own the club building. If the Club closes, the supervisory staff will no longer be employed. Ruby will no longer be responsible for the airport fee.

Required:

Decide on whether Ruby should discontinue the club operations. Demonstrate your calculation.

(14 marks)

(Total 14 marks)