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 83 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	$	6,700		$	476.00		$	3.50
Advertising	$	2,500
Administrative costs	$	5,200		$	35.00		$	1.50
Insurance	$	3,900

For example, vessel operating costs should be $6,700 per month plus $476.00 per cruise plus $3.50 per passenger. The company’s sales should average $32.00 per passenger. In July, the company provided 57 cruises for a total of 3,050 passengers.

Required:

Prepare the company’s flexible budget for July.

Answer 1

Flexible budget

Sales (3050*32)	97600
Less: Cost
Vessel operating cost (3050*3.5+476*57+6700)	44507
Advertising	2500
Administrative cost (1.5*3050+35*57+5200)	11770
Insurance	3900
Total Cost	62677
Operating income	34923