Salary 20000 0 20000 insurance 10000 10000 0 airport

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Unformatted text preview: epreciation (30,000) (30,000) 0 Supervisor salary (20,000) 0 (20,000) Insurance (10,000) (10,000) 0 Airport fees ( 5,000) 0 ( 5,000) Allocated overhead (10,000) (10,000) 0 Loss $ (10,000) $(50,000) $ 40,000 14-27 Add or Drop a Product Add KEEP CLUB Sales $200,000 N O Food/Beverage (70,000) T Personnel (40,000) A Variable overhead (25,000) V Contribution Margin 65,000 O Depreciation (30,000) I Supervisor salary (20,000) D Insurance (10,000) A B Airport fees ( 5,000) L Allocated overhead (10,000) E Loss (10,000) ELIMINATE DIFFERENTIAL 0 $200,000 A 0 (70,000) V 0 (40,000) O 0 (25,000) I 0 65,000 D (30,000) 0 A 0 (20,000) (10,000) B 0 L 0 ( 5,000) (10,000) E 0 (50,000) 40,000 The positive $40,000 differential amount reflects the fact that the company is $40,000 better off by keeping the club. 14-28 Add or Drop a Product Add KEEP CLUB ELIMINATE DIFFERENTIAL Sales $200,000 0 $200,000 Food/Beverage (70,000) 0 (70,000) Personnel (40,000) 0 (40,000) Variable overhead (25,000) 0 (25,000) Contribution Margin 65,000 0 65,000 Avoidable fixed costs Supervisor salary (20,000) 0 (20,000) Airport fees ( 5,000) 0 ( 5,000) Profit/Loss $ 40,000 $ 40,000 Worldwide airlines would also lose the contribution margin of $65,000. The club contributes $40,000 to Worldwide’s fixed costs. 14-29 Conclusion Conclusion KEEP THE CLUB OPEN! Contribution margin from general airline operations that will be forgone if club is eliminated . . . . . . . . . . . $ 60,000 Profit/Loss $ 40,000 Monthly profit of KEEPING the club open The Opportunity Cost of lost contribution margin is $60,000. –0– $ 60,000 –0– $ 40,000 $100,000 ======= Worldwide is better off b...
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