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:

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The technique of fully concentrating, understanding, responding, and remembering what is being said in a conversation.

Message Source

The originator or sender of a communication message, who initiates the message to be received by an audience.

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The physical or virtual extent in which objects and events occur and have relative position and direction.

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Information or feelings conveyed through the spoken word as opposed to non-verbal ways of communication.