Accounts Payable is reported on which financial statement? a. ...

[pragya sharda]

Accounts Payable is reported on which financial statement?
 a. balance sheet
  b. income statement
  c. statement of owner's equity
  d. none of the answers listed

Question 2

Dropping a product line, selling more tours
 
  Mechum River Anglers, a division of Old Dominion Travel, offers two types of guided fly fishing tours, Basic and Deluxe. Operating income for each tour type in 2014 is as follows:
 
   The equipment has a zero disposal value. Guide wages, supplies, and vehicle fuel are variable costs with respect to the number of tours. Administrative salaries are fixed costs with respect to the number of tours. Brad Barrett, Mechum River Anglers' president, is concerned about the losses incurred on the deluxe tours. He is considering dropping the deluxe tour and offering only the basic tour.
 
  Required:
  1. If the deluxe tours are discontinued, one administrative position could be eliminated, saving the company 50,000. Assuming no change in the sales of basic tours, what effect would dropping the deluxe tour have on the company's operating income?
  2. Refer back to the original data. If Mechum River Anglers drops the deluxe tours, Barrett estimates that sales of basic tours would increase by 50. He believes that he could still eliminate the 50,000 administrative position. Equipment currently used for the deluxe tours would be used by the additional basic tours. Should Barrett drop the deluxe tour? Explain.
  3. What additional factors should Barrett consider before dropping the deluxe tours?

[Yixagurpuldink]

Answer to Question 1

A

Answer to Question 2

1. Barrett should not drop the deluxe tours, as follows:

Lost revenues from deluxe tours (660,000)
Avoidable operating costs from dropping deluxe tours:
Administrative salaries 50,000
Guide wages 380,000
Supplies 100,000
Vehicle fuel 24,000
Total avoidable costs 554,000
Lost operating income from dropping deluxe tours (106,000)

Note: Equipment depreciation, allocated corporate costs, and unavoidable administrative salaries are irrelevant to the decision.

2. Barrett should drop the deluxe tours, as follows:

Basic
Deluxe
Total
Change in revenues
225,000
(660,000)
(435,000)
Change in operating costs:

Administrative salaries 0 (50,000) (50,000)
Guide wages
65,000
(380,000)
(315,000)
Supplies
25,000
(100,000)
(75,000)
Vehicle fuel
15,000
(24,000)
(9,000)
Total change in operating costs
105,000
(554,000)
(449,000)
Change in operating income
120,000
(106,000)
 14,000

3. Barrett should consider if it is possible to increase the number of deluxe tours sold, or if it is possible to reduce the costs of those tours before dropping them. He could also investigate the possibility of increasing the price of the deluxe tours if customers would tolerate it.

[pragya sharda]

Thank you

[Yixagurpuldink]

Happy to help you