Adventure Expeditions offers guided back-country hiking/camping trips in Colombi
ID: 2487487 • Letter: A
Question
Adventure Expeditions offers guided back-country hiking/camping trips in Colombia Andes. Adventure provides a guide and all necessary food and equipment at a fee of $50 per person per day. Adventure currently provides an average of 600 guide-days per month in June, July, August, and September. Based on available equipment and staff, maximum capacity is 800 guide-days per month. Monthly variable and xed operating costs are as follows:
Variable Costs Per Person
Food $ 5
Guide salary 25
Supplies 2
Insurance 8
Total $ 40
Fixed Costs
Equipment rental $ 5,000
Administration 5,000
Advertising 2,000
Total $12,000
(A.) A $7 decrease in the daily fee should result in a 300-unit increase in monthly sales. However,
because of capacity constraints, the last 100 guide-days would be provided by subcontracting to
another rm at a cost of $46 per guide-day.
i) Calculate profit increase from increased tours with no changes in prices or costs
ii) Calculate profit decrease from reduction in selling price for all tours
iii) Calculate profit decrease from increase cost of the last 100 tours
iv) Show the increase or decrease in monthly profit.
Explanation / Answer
(i),(ii) and (iii)
(i) (ii) (iii) Revenue 40,000 34,400 38,700 (800 guide-days per month * $50) (800 guide-days per month * $43)($50-$7) (900 guide-days per month * $43)) Less:Variable Cost Food 5 4,000 4,000 4,500 Guide salary 25 20,000 20,000 22,500 Supplies 2 1,600 1,600 1,800 Insurance 8 6,400 6,400 7,200 Total 40 32,000 32,000 36,000 Contibution 8,000 2,400 2,700 Less: Fixed Cost Equipment Rental 5,000 Administration 5,000 Advertising 2,000 Total 12,000 12,000 12,000 Increses outsourcing cost @46 4,600 Profit/(Loss) (4,000) (9,600) (13,900) Increase in loss (5,600) (4,300)Related Questions
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