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Problem 1 Decision Making - Keep or Drop Thermopolis Travels, offers two types of Genovia city tour, Basic and Deluxe. Operating income for each tour type in 2022: Basic Deluxe Revenue (560 x $900; 420 x $1660) $504,000 $697,200 Operating costs: Administrative salaries 160,000 120,000 Guide wages 130,000 390,000 Supplies 50,000 100,000 Depreciation of equipment 25,000 80,000 Vehicle Fuel 24,000 30,000 Allocated corporate overhead 45,000 70,000 Total operating costs 434,000 790,000 Operating income (loss) 70,000 (92,800) The equipment has 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. Phillipe Renaldi, Thermopolis' CEO, is concerned about the losses incurred on the deluxe tours. He is considering dropping the deluxe tour and offering only the basic tour. Required: 1. If deluxe tours are discontinued, one administrative position could be eliminated, saving the company $80,000. Assuming no change in the sales of basic tours, what effect would dropping the deluxe tour have on the company's operating income? 2. Refer back to the original data. If Thermopolis drops the deluxe tours, Phillipe estimates that sales of basic tours would increase by 60%. He believes that he could still eliminate the $50,000 administrative position. Equipment currently used for the deluxe tours would be used by the additional basic tours. Should Phillipe drop the deluxe tours? Explain. 3. What additional factors should Phillipe consider before dropping the deluxe tours