Asian Adventure Holidays offers a series of holiday packages aimed at families, seniors and corporate groups. The financial controller, Jack Tallis, is preparing for the annual board meeting and is concerned about the loss that the business sustained in the past year. He has examined the profits for each of the three departments of the business—family, seniors and corporate—and it seems that the corporate department is the source of the problem.Jack has asked you to assist him to look more closely at the three packages offered by the corporate department to see which holiday packages are yielding profits and which are not. The three packages are to Thailand, Malaysia and Indonesia. The sales and direct costs of each corporate package for last year are as follows: Bali AdventureThailand DiscoveryMalaysian Orienteering Number of packages sold102010 Number of people per package568 Revenue per person$18 000$12 000$14 000 Direct cost per package: Tour leader$5 000$12 000$9 000 Tour assistant2 0003 0006 000 Air travel28 00030 00032 000 Accommodation15 00026 00024 000 Equipment hire4 00009 000 Meals18 00015 0008 000 To calculate the profitability of each package, a proportion of the overhead costs of running the corporate department needs to be allocated to the three packages. Jack has suggested that these costs could be allocated to each package in proportion to actual sales revenue. For last year these overhead costs were as follows: Salaries$200 000 Phone2 000 Depreciation on equipment5 000 Utilities2 000 Rent and property taxes9 000 Other department costs12 000 Total$230 000 Required:1. Calculate the profit per package and the total profitability of each of the three corporate packages.2. Compare the profitability of the three corporate packages.3. Do you consider that the allocation of the corporate department overhead to packages using actual sales revenue is appropriate? Can you suggest a better method?4. Suggest what actions the company could take in regard to the three corporate packages.
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