Alyeski Tours operates day tours of coastal glaciers in Alaska on its tour boat

Question

Alyeski Tours operates day tours of coastal glaciers in Alaska on its tour boat the Blue Glacier. Management has identified two cost drivers—the number of cruises and the number of passengers—that it uses in its budgeting and performance reports. The company publishes a schedule of day cruises that it may supplement with special sailings if there is sufficient demand. Up to 86 passengers can be accommodated on the tour boat. Data concerning the company’s cost formulas appear below: Fixed Cost per Month Cost per Cruise Cost per Passenger Vessel operating costs $ 6,700 $ 475.00 $ 3.40 Advertising $ 2,700 Administrative costs $ 5,300 $ 30.00 $ 1.50 Insurance $ 4,000 For example, vessel operating costs should be $6,700 per month plus $475.00 per cruise plus $3.40 per passenger. The company’s sales should average $31.00 per passenger. The company’s planning budget for July is based on 55 cruises and 3,150 passengers.

Explanation / Answer

Planning budget :

Revenue (3150*31) 97650 Expense Vessel operating costs (6700+475*55+3.4*3150) 43535 Advertising 2700 Administrative costs (5300+30*55+1.5*3150) 11675 Insurance 4000 Total expense 61910 Net operating income 35740

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