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.

    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:

The "Bus maintenance and preparation" cost 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.

By how much will the profits increase or decrease if this tour is discontinued? (Input the amount as a positive value.)

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.

Explanation / Answer

Expenses that will continue to incur even if tour is dropped:

There will no income if tour is dropped.,so loss = 1280

Increase in loss = 1280- 108 = 1172

profit would decrease by 1172

Bus driver salary 380 Bus maintenance 260 Depreciation 460 Liability of insurance 180 Total expense 1280

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