Depreciation of buses is due to obsolescence depreciation


Blueline Tours, Inc.

Blueline Tours, Inc., operates tours throughout the United States. A study has indicated that some of the tours are not profitable, and consideration is being given to dropping these tours to improve the company's overall operating performance.

One such tour is a two-day Historic Mansions bus tour conducted in the southern states. An income statement from a typical Historic Mansions tour is given below

Ticket revenue (120 seat capacity × 40% 3,360   100
    occupancy × $70 ticket price per person)
  Variable expenses ($10.00 per person) 480   14.3
     
  Contribution margin 2,880   85.7
     
  Tour expenses:

     Tour promotion 690  
     Salary of bus driver 360  
     Fee, tour guide 720  
     Fuel for bus 185  
     Depreciation of bus 390  
     Liability insurance, bus 210  
     Overnight parking fee, bus 70  
     Room and meals, bus driver and tour guide 200  
     Bus maintenance and preparation 290  
   
  Total tour expenses 3,115  
   
  Net operating loss (235)   

Required:

By how much will the profits increase or decrease if this tour is discontinued? (Input the amount as a positive value.

The following additional information is available about the tour:

a. Bus drivers are paid fixed annual salaries; tour guides are paid for each tour conducted.

b. The 'Bus maintenance and preparation" cost on the previous page is an allocation of the salaries of mechanics and other service personnel who are responsible for keeping the company's fleet of buses in good operating condition.

c. Depreciation of buses is due to obsolescence. Depreciation due to wear and tear is negligible.

d. Liability insurance premiums are based on the number of buses in the company's fleet.

e. Dropping the Historic Mansions bus tour would not allow Blueline Tours to reduce the number of buses in its fleet, the number of bus drivers on the payroll, or the size of the maintenance and preparation staff.

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Financial Accounting: Depreciation of buses is due to obsolescence depreciation
Reference No:- TGS0664060

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