Use the Information Below to Answer the Following Questions The Fixed Costs Have Been Shared Equally Between the Three

question 29

Multiple Choice

Use the information below to answer the following questions.
Travel Made Easy Ltd provides three services: International travel, Interstate travel, and Holiday Packages. The results for the year were as follows: $$\begin{array} { l r r c r } & \text { International } & \text { Interstate } & \text { Packages } & \text { Total } \\\hline\text { Revenue } & \$ 200,000 & \$ 200,000 & \$ 100,000 & \$ 500,000 \\\text { Variable costs } & \underline{ 50,000}& \underline{60,000} & \underline{40,000 }& \underline{ 150,000 }\\\text { Contribution } & 150,000 & 140,000 & 60,000 & 350,000 \\\text { Fixed costs } & \underline{90,000}& \underline{90,000} & \underline{90,000 }& \underline{270,000} \\\text { Net Profit } & \underline{\$ 60,000} & \underline{ \$ 50,000 }& \underline{ ( \$ 30,000 ) } & \underline{ \$ 80,000} \\\end{array}$$ The Fixed costs have been shared equally between the three functions.
-Refer to the table above. Management is contemplating closing the Holiday Packages service; this would involve a cost saving of $40,000 per annum, namely, the variable costs. The fixed costs are not expected to change. The best advice to management is:

• A)close the service, and the business would make a profit of $110,000.
• B)do not close the service, because profit would decrease by $60,000.
• C)close the service and save $40,000.
• D)do not close the service, because profit would decrease by $90,000.

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Definitions:

Vitamins

Organic compounds that are essential in small quantities for the body's normal growth and activity.

Diet

The kinds of food that a person, animal, or community habitually eats, often tailored for health, religious, ethical, or weight-control reasons.

Minerals

Naturally occurring inorganic substances with a definite chemical composition and crystalline structure, essential for human health.