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Blueline Tours Inc operates tours throughout the United States A study has indicated thatsome of the tours are not profitable and consideration is being given to dropping these tours

Blueline Tours, Inc., operates tours throughout the United States. A study has indicated thatsome of the tours are not profitable, and consideration is being given to dropping these tours toimprove the company’s overall operating performance.One such tour is the two-day Historic Mansion Tour is conducted by bus in the southern states.An income statement from a typical Historic Mansions Tour is given below:Ticket revenue (100 seat capacity x 40% occupancy x$75 ticket price per personVariable expenses ($22.50 per person)Contribution margin $3,0009002,100 Tour expenses:Tour promotionSalary of bus driverFee, tour guideFuel for busDepreciation of busLiability insurance, busOvernight parking fee, busRoom and meals, bus driver and tour guideBus maintenance and preparationTotal tour expensesNet operating loss $600350700125450200501753002,950$(850) 100%30%70% The following additional information is available about the tour:a) Bus drivers are paid annual fixed salaries; tour guides are paid for each tour conducted.b) The “Bus maintenance and preparation” cost is an allocation of the salaries of mechanics andother service personnel who are responsible for keeping the company’s fleet of buses in goodoperating condition.c) Liability insurance premiums are based on the number of buses in the company’s fleet.d) Dropping the Historic Mansions Tour would not allow Blueline Tours to reduce the number ofbuses in its fleet, the number of bus drivers on the payroll or the size of the maintenance andpreparation staff.Required:1) Prepare an analysis showing what the impact will be on the company’s profits if this tour isdiscontinued.2) The company tour director has been criticized because only about 50% of the seats onBlueline’s tours are being filled as compared to an industry average of 60%. The tour directorhas explained that Blueline’s average seat occupancy could be improved considerably byeliminating about 10% of its tours, but that doing so would reduce profits. Explain how thiscould happen.

Jun 26 2020 View more View Less

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