QUESTION 2 Teluk Baru Resort is located in the west coast of Malaysia. The resort has three main departments; Hotel & Lodging, Caf and River-cruise. The following is the current year's information regarding the total revenues and total costs involved in the resort's operation: River-cruise Hotel & Lodging RM 312,000 Caf RM 135,000 RM 98,000 Revenues (-) Costs: Supplies and material Salaries Telephone Utilities Administrative Depreciation Net profit 65,000 72,000 8,000 42,000 54,000 51,000 20,000 34,000 48,000 3,700 13,900 12,000 20,000 3,400 20,100 16,600 5,500 5,400 9,200 30,000 11,200 Recently, the local government has opened a food court about 1 km away from the resort. Some of the guests chose to have their meals there as it is cheaper and offer more varieties compared to the resort's caf. As a result, the management of Teluk Baru Resort is considering closing down the Caf. The following additional information is made available: i. Supplies and materials are all variable cost. Several contractors deliver the Caf supplies and material on a weekly basis and therefore all the Caf supplies and material costs can be avoided if the Caf is closed. ii. If the Caf is closed, two clerks from the Caf with a salary of RM9,000 per year each will be retained and transferred to Hotel & Lodging Department. The other Caf employees will be released and the expected total compensation will amount to RM7,000. ii. Total telephone bill of the resort include RM10,000 fixed cost for basic services which are allocated at a ratio of 5:2:3 to Hotel & Lodging, Caf and River-cruise Department respectively. If the Caf is closed, the total fixed telephone of the resort will be reallocated to Hotel & Lodging and River-cruise at 6:4 respectively. The variable cost of the Caf's telephone bill can be avoided if the Caf is closed. iv. Three quarter of utilities costs are variable. The balance of the utilities costs resulted from the closure of the Caf will be absorbed by River Cruise department. V. If the Caf is closed, one quarter of its administrative and depreciation costs are unavoidable. They will be borne equally by the remaining departments. vi. It is estimated that RM6,500 will have to be spent by the resort for cleaning, removing and dismantling process following the closure of the Caf. Required: a) Prepare the revised income statement using marginal costing approach if the management of Teluk Baru Resort decides to close the Caf. b) Advise the management whether the Caf should cease the operation. c) Explain two (2) qualitative factors to be considered before the management decides to close the Cat