Question

Alyeski Tours operates day tours of coastal glaciers in Alaska on its tour boat the Blue Glacier. Management has identified two cost drivers—the number of cruises and the number of passengers—that it uses in its budgeting and performance reports. The company publishes a schedule of day cruises that it may supplement with special sailings if there is sufficient demand. Up to 86 passengers can be accommodated on the tour boat. Data concerning the company’s cost formulas appear below:

    

	Fixed Cost Per Month		Cost per Cruise		Cost per Passenger
Vessel operating costs	$	6,400	$	472.00	$	3.20
Advertising	$	2,200
Administrative costs	$	5,600	$	31.00	$	1.50
Insurance	$	3,500

  

For example, vessel operating costs should be $6,400 per month plus $472.00 per cruise plus $3.20 per passenger. The company’s sales should average $32.00 per passenger. The company’s planning budget for July is based on 50 cruises and 3,050 passengers.

  

Required:

Complete the company’s planning budget for July.

Answer 1

Concepts and reason

Budget: Budget is an estimated value in advance which acts as goal and objective for the managers. A pre-estimated value is prepared based on experience, knowledge, and opportunities in the market to earn revenue. It helps in setting the path to be followed, rules and tactics to be framed to achieve the goal and objectives.

Planning Budget: This budget is prepared to estimate the operating for the company in the given period. This budget is prepared with the help of revenue, administrative expenses, and operating expenses. The sum of administrative expenses and operating expenses from revenue to find out the net income.

Fundamentals

For finding out budgeted sales value, expected sales units are multiplied with the selling price per unit. This provided the budgeted sales value. This is prepared for different products separately.

Operating income is found out deducting the sum of administrative expenses and operating expenses from revenue to find out the net income.

Determine the amount of budgeted revenue as follows: -

$\begin{array}{c}\\{\mathop{\rm Re}\nolimits} venue\, = \,Number\,of\,Passenger\, \times Selling\,\Pr ice\,per\,Passenger\\\\ = \,3,050\, \times \$ 32\\\\ = \$ 97,600\\\end{array}$

Therefore, the amount of budgeted revenue is $97,600.

Vessel operating costs should be $6,400 per month plus $472.00 per cruise plus $3.20 per passenger. The company’s sales should average $32.00 per passenger. The company’s planning budget for July is based on 50 cruises and 3,050 passengers.

Determine the planning budget as follows: -

Therefore, the budgeted net operating income is $40,415.

Ans:

The budgeted net operating income is $40,415.