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

question 24

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. Assume that Travel Made Easy can sublet the space occupied by the Holiday Packages for $50,000 per annum. The best advice to management is:

• A)to close the service and save $40,000.
• B)do not close the service, because profit would decrease by $10,000.
• C)do not close the service, because profit would decrease by $40,000.
• D)to close the service, and the business would make a profit of $130,000.

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Definitions:

Dow Jones

A reference to either the Dow Jones Industrial Average (DJIA), a stock market index of 30 prominent companies in the U.S., or the company Dow Jones & Company, known for its financial market indices and news.

Industrial Average

A stock market index that measures the performance of a sector of the economy, typically composed of leading companies in that sector.

Price-Weighted

Refers to a stock market index in which each company's stock influences the index in proportion to its price per share.

Money Market

A segment of the financial market in which short-term financial instruments, such as Treasury bills and commercial paper, are traded.