When she was a child, Amy Nicholson spent a lot of time in Southeast Asia. Consequently, Amy is well versed in the local languages (she is fluent in Thai and Tagalog) and customs.
Over time, Amy has parlayed her experience and expertise into a profitable business: she organizes tours to Southeast Asia for vacation travelers from North America. Not surprisingly, Amy’s profit depends a great deal on the number of tours she organizes. Amy charges $4,000 per person and can accommodate a maximum of 50 persons per tour. While she seeks to fill up each tour, some tours have less than 50 persons. Amy cancels the tour if she has fewer than 35 persons. Amy estimates that each tour costs $98,000 to set up and organize. This cost is in addition to the variable cost of $1,200 she incurs for each person on the tour. Finally, Amy incurs fixed expenses of $50,000 per quarter to maintain her central office in Carmel-by-the-Sea, California.

Required:
a. Classify each of Amy’s three types of costs (cost per person, per tour, and per quarter) as per the cost hierarchy.
b. Using your cost classifications from part (a), calculate Amy’s total quarterly costs if
(1) She has two tours with 40 persons per tour, and
(2) She has five tours with 50 persons per tour.
c. Why would Amy cancel a tour if it has fewer than 35 persons?