Deluxe Tours, a tour organizer, leased a cruise liner for a special round-the-world tour. The lease cost is $200,000. Two classes of passengers are booked on the tour: first class and economy class. The total revenue from the 100 first-class passengers is $200,000, and from the 200 economy-class passengers is $200,000. Other costs for the two classes of passengers amount to $30,000 for first class and $30,000 for economy class.

REQUIRED

A. How much of the lease cost would be allocated to first-class passengers if the net realizable value method is used?

B. What is the contribution margin generated by first-class passengers?

C. When the cruise liner managers are deciding whether to increase the number of first-class rooms, which joint cost allocation method, is best to use? Explain.