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Category > Accounting Posted 11 Apr 2018 My Price 10.00

Asian Adventure Holidays

Asian Adventure Holidays offers a series of holiday packages aimed at families, seniors and corporate groups. The financial controller, Jack Tallis, is preparing for the annual board meeting and is concerned about the loss that the business sustained in the past year. He has examined the profits for each of the three departments of the business—family, seniors and corporate—and it seems that the corporate department is the source of the problem.

Jack has asked you to assist him to look more closely at the three packages offered by the corporate department to see which holiday packages are yielding profits and which are not. The three packages are to Thailand, Malaysia and Indonesia. The sales and direct costs of each corporate package for last year are as follows:

   Bali Adventure

Thailand Discovery

Malaysian Orienteering

   Number of packages sold

10

20

10

   Number of people per package

5

6

8

   Revenue per person

$18 000

$12 000

$14 000

   Direct cost per package:

      Tour leader

$5 000

$12 000

$9 000

   Tour assistant

2 000

3 000

6 000

   Air travel

28 000

30 000

32 000

   Accommodation

15 000

26 000

24 000

   Equipment hire

4 000

0

9 000

   Meals

18 000

15 000

8 000

  To calculate the profitability of each package, a proportion of the overhead costs of running the corporate department needs to be allocated to the three packages. Jack has suggested that these costs could be allocated to each package in proportion to actual sales revenue. For last year these overhead costs were as follows:

  Salaries

$200 000

   Phone

2 000

   Depreciation on equipment

5 000

   Utilities

2 000

   Rent and property taxes

9 000

   Other department costs

12 000

   Total

$230 000

   

Required:

1. Calculate the profit per package and the total profitability of each of the three corporate packages.

2. Compare the profitability of the three corporate packages.

3. Do you consider that the allocation of the corporate department overhead to packages using actual sales revenue is appropriate? Can you suggest a better method?

4. Suggest what actions the company could take in regard to the three corporate packages.

Answers

Maurice Tutor
(5)
Status NEW Posted 11 Apr 2018 11:04 AM My Price 10.00

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