Shea River Tours, a division of Old World Travel, offers two types of guided fishing tours: Beginner and Advanced. Operating income for each tour type for the year is as follows Beginner Advanced Revenues (1,020 x $925; 820 x $1,675) $943,500 $1,373,500 Operating costs Administrative salaries 239,000 201,000 Guide wages 261,000 764,000 Supplies 97,500 195,000 Depreciation of equipment 51,000 120,000 Vehicle fuel 65,000 52,000 Allocated corporate overhead 94,000 138,000 Total operating costs 807,500 1,470,000 Operating income (loss) $136,000 $(96,500) 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. , 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. 1. If the Advanced tours are discontinued, one administrative position could be eliminated, saving the company $109,000. Assuming no change in the sales of Beginner tours, what effect would dropping the Advanced tour have on the company's operating income? 2. Refer to the original data. If River Tours drops the Advanced tours, estimates that sales of Beginner tours would increase by 50%. He believes that he could still eliminate the $109,000 administrative position. Equipment currently used for the Advanced tours would be used by the additional Beginner tours. Should drop the Advanced tour? Explain. 3. What additional factors should consider before dropping the Advanced tours? Requirement 1. If the Advanced tours are discontinued, one administrative position could be eliminated, saving the company . Assuming no change in the sales of Beginner tours, what effect would dropping the Advanced tour have on the company's operating income? (Enter losses in revenues as a negative amount. Enter a zero if the cost is not relevant. If the net effect is an operating loss, enter the amount with parentheses.) Difference: Incremental (loss in revenues) and savings in costs from dropping Advanced tours Lost revenues from Advanced tours Avoidable operating costs from dropping Advanced tours: Administrative salaries Guide wages Supplies Vehicle fuel Total avoidable costs Gain/(loss) in operating income from dropping Advanced tours Part 2 On the basis of financial considerations alone, should River Tours discontinue the Advanced tours, assuming one administrative position could be eliminated, saving the company ? (Enter a positive amount only.) 's operating profit will be $ enter your response here higher lower if it discontinues the Advanced tours. Therefore, should should not discontinue the Advanced tours. Part 3 Requirement 2. Refer to the original data. If River Tours drops the Advanced tours, estimates that sales of Beginner tours would increase by 50%. He believes that he could still eliminate the administrative position. Equipment currently used for the Advanced tours would be used by the additional Beginner tours. Should drop the Advanced tour? Explain. (Enter a zero if the cost is not relevant. If the net effect is an operating loss, enter the amount with parentheses. Enter losses in revenues and increases in costs as negative amounts.) Difference: Incremental (gain in revenues) and increase in costs from Beginner 50% sales increase Difference: Incremental (loss in revenues) and savings in costs from dropping Advanced tours Total Change in revenues Change in operating costs: Administrative salaries Guide wages Supplies Vehicle fuel Total change in operating costs Change in operating income Part 4 Should River Tours drop the Advanced tour to sell more Beginner tours? Explain. (Enter a positive amount only.) should should not drop the Advanced tour to sell more Beginner tours because doing so will generate $ enter your response here of incremental operating profit. loss. Part 5 Requirement 3. What additional factors should consider before dropping the Advanced tours? (Select all that apply.) A. should consider if it is possible to increase the number of Advanced tours sold. B. should investigate the possibility of increasing the price of the Advanced tours if customers would tolerate it. C. should see if it is possible to reduce the costs of Advanced tours before dropping them. D. should consider if it is possible to decrease the number of Advanced tours sold. E. None of the above are correct.