(CVP decision alternatives) Norman Horn owns a small travel agency. His revenues are based on commissions earned as follows:

Airline bookings	8% commission
Rental car bookings	10% commission
Hotel bookings	20% commission

Monthly fixed costs include advertising ($1,100), rent ($900), utilities ($250), and other costs ($2,200). There are no variable costs. During a normal month, Norman records the following items, which are subject to the above commission structure:

Airlines	$30,000
Cars	4,500
Hotels	7,000
Total	$41,500

Norman is concerned because he is experiencing a monthly loss.

a. What is Norman’s normal monthly income?

b. Norman can increase his airline bookings by 40 percent with an increase in advertising of $600. Should he increase advertising?

c. Norman’s friend Jeff has asked him for a job in the travel agency. Jeff has

proposed that he be paid 50 percent of whatever additional commissions

he can bring to the agency plus a salary of $300 per month. Norman has

estimated Jeff can generate the following additional bookings per month:

Airlines	$10,000
Cars	1,500
Hotels	4,000
Total	$15,500

Hiring Jeff would also increase other fixed costs by $400 per month. ShouldNorman accept Jeff’s offer?

d. Norman hired Jeff and in the first month Jeff generated an additional $8,000 of bookings for the agency. The bookings, however, were all airline tickets. Was the decision to hire Jeff a good one? Why or why not?