Blueline Tours, Inc., operates tours throughout the United States. A study has i

Question

Blueline Tours, Inc., operates tours throughout the United States. A study has indicated that some of the tours are not profitable, and consideration is being given to dropping these tours to improve the company’s overall operating performance.

The “Bus maintenance and preparation” cost on the previous page is an allocation of the salaries of mechanics and other service personnel who are responsible for keeping the company’s fleet of buses in good operating condition.

Depreciation of buses is due to obsolescence. Depreciation due to wear and tear is negligible.

Dropping the Historic Mansions bus tour would not allow Blueline Tours to reduce the number of buses in its fleet, the number of bus drivers on the payroll, or the size of the maintenance and preparation staff.

     One such tour is a two-day Historic Mansions bus tour conducted in the southern states. An income statement from a typical Historic Mansions tour is given below:

Explanation / Answer

Decrease profits by $526 Loss of contribution margin = 2376 Avoided expenses: 710, tour promotion; 710, fee, tour guide; 165, bus fuel; 80, overnight parking; 185 room and board for tour guide. Total avoided expense = 1850. Derease in profits = 2376 - 1850 = 526

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