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 82 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	$	6,100		$	477.00		$	3.30
Advertising	$	2,400
Administrative costs	$	5,700		$	38.00		$	1.50
Insurance	$	3,300

For example, vessel operating costs should be $6,100 per month plus $477.00 per cruise plus $3.30 per passenger. The company’s sales should average $33.00 per passenger. In July, the company provided 56 cruises for a total of 3,050 passengers.

Required:

Prepare the company’s flexible budget for July.

Answer 1

	Alyeski Tours
	Flexible budget
	For the month ended July 31
		Workings	Amount
(i)	Revenue	($33 X 3050)	$1,00,650
	Expenses:
	Vessel operating cost	6100 + ($477 X 56) + ($3.30 X 3050)	$    42,877
	Advertising	$                                                     2,400	$      2,400
	Administrative costs	5700 + ($38 X 56) + ($1.50 X 3050)	$    12,403
	Insurance	$                                                     3,300	$      3,300
(ii)	Total expense		$    60,980
(i) - (ii)	Net operating income		$    39,670

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