End Trail Campground is open year-round. However, 80% of its revenues are generated from May through October.
Question:
End Trail Campground is open year-round. However, 80% of its revenues are generated from May through October. Because only 20% of the revenues are generated from November to April, End Trail is considering closing during those months. The yearly revenues and cost information expected by End Trail for next year if the campground does not close are:
Camping fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,500,000
Variable costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 800,000
Fixed costs ($35,000 per month) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 420,000
The cost to close the campground at the end of October would be $15,000, and the cost to reopen in May would be $40,000. If the campground is closed, the total fixed costs are only $25,000 per month, rather than the $35,000 per month when the campground is open.
Required:
Determine whether End Trail should close from November to April or remain open for the entire year.
Step by Step Answer:
Accounting concepts and applications
ISBN: 978-0538745482
11th Edition
Authors: Albrecht Stice, Stice Swain