please explain 9.25 NRV Method, Contribution Margin, Further Processing for a Se

Question

please explain

9.25 NRV Method, Contribution Margin, Further Processing for a Service Deluxe Tours, a tour organizer, leased a cruise liner for a special around-the-world tour. The 02 03 LO4REQUIRED lease cost is $200,000. Two classes of passengers are booked on the tour: first class and economy class. The total revenue from the 100 first-class passengers is $200,000 and from the 200 economy-class passengers is $200,000. Other costs for the two classes of passengers amount to $30,000 for first class and $30,000 for economy class. A. How much of the lease cost will be allocated to first-class passengers if the net realizable value method is used? B. What is the contribution margin generated by first-class passengers? C. When the cruise liner managers are deciding whether to increase the number of first-class rooms, which joint cost allocation method is best to use? Explain.

Explanation / Answer

1. Statement Showing Allocation of Lease cost on NRV Basis First Class Economy Class No. of Passenger                              100                             200 Revenue $200,000 $200,000 Other Cost $30,000 $30,000 Net Realizable Value, $170,000 $170,000 Allocation of Lease Cost $100,000 $100,000 ($200000/340*170) 2. Contribution Margin by First Class Passenger First Class No. of Passenger                              100 Revenue $200,000 Less: Other Cost $30,000 Contribution $170,000 Less: Fixed Lease Cost ( Allocated) $100,000 Net Profit(Loss) $70,000 Solution for part-3 First Class Economy Class Allocation of Lease cost on NRV Basis Lease cost allocation on NRV Basis $100,000 $100,000 Allocation of Lease cost on revenue basis Revenue $200,000 $200,000 Allocation of Lease Cost $100,000 $100,000 ($200000/400*200) Allocation of Lease cost on No. of Passenger basis No. of Passenger                              100                             200 Allocation of Lease cost $66,667 $133,333 ( $200000/300*100) ( $200000/300*200) Joint cost allocation of Lease cost by No. of Passenger is best to use , incase of decision is related with increase in No. of first class room

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