Question

Suppose a tour agent approached the general manager of the Grand Canyon Railway with a proposal to offer a special guided tour to the agent’s clients.
The tour would occur 20 times each summer and be part of a larger itinerary that the agent is putting together. The agent presented two options:
(a) a special 65-mile tour with the agent’s 30 clients as the only passengers on the train, or
(b) adding a car to an existing train to accommodate the 30 clients on an already scheduled 65-mile tour.
Under either option, Grand Canyon would hire a tour guide for $200 for the trip. Grand Canyon has extra cars in its switching yard, and it would cost $40
to move a car to the main track and hook it up. The extra fuel cost to pull one extra car is $.20 per mile. To run an engine and a passenger car on the trip
would cost $2.20 per mile, and an engineer would be paid $400 for the trip.
Depreciation on passenger cars is $5,000 per year, and depreciation on engines is $20,000 per year. Each passenger car and each engine travels about
50,000 miles a year. They are replaced every 8 years.
The agent offered to pay $32 per passenger for the special tour and $15 per passenger for simply adding an extra car. Assume you are the tour guide. What questions do you have about the way your proposal was analyzed? What changes might you make to your proposal to make it more appealing? In what ways do you see applying the approach taken in for the Grand Canyon Railways analysis to other situations?

Answer 1

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What questions do you have about the way your proposal was analyzed?

• With how many tour agents does Grand Canyon have arrangements like this in place?
• Who analyzed the proposal
• What criterial were taken to analyze
• What other add-ons can be provided
• What cost components of variable and fixed were taken into consideration

What changes might you make to your proposal to make it more appealing?

• The tour agent guide will be hired by agent instead of railways and he would give services to other fellow passengers also in case they require for additional car case
• Provide extra compensation to the railways

In what ways do you see applying the approach taken in for the Grand Canyon Railways analysis to other situations?

• I see them as the learning experience to apply all variable costs in the calculation for the proposals along with some part of fixed cost to start with so we can have scope of negotiation as the other party will also naturally increase their prices.