OBJECTIVE:

To enable learners to identify the relevant costs and benefits from costs and revenue information available in the financial database to aid decision making in a timely manner.

REQUIREMENT: Short term decision making

Question

Sapphire Airlines offers its passenger the opportunity to join Sapphire Express Club that entitles a traveller to use the club facilities at any Malaysian airports. Club privileges include private lounge and restaurant, discounts on meals and beverages and use of small health spa.

As with other airlines around the globe, Sapphire has been facing a decline in profit attributable to the Covid19 pandemic movement restriction. The Club in particular, has shown consistent loss.

The recent statement are as follows:

Sales revenue 150,000

Variable expenses:

Food and beverages (70,000)

Personnel (40,000)

Variable overhead (25,000)

Contribution margin 15,000

Fixed expenses:

Club building Depreciation (30,000)

Supervisory salary (25,000)

Airport fees (15,000)

General overhead (allocated) (10,000)

Profit (loss) (65,000)

All Club's variable expenses can be avoided should the club be discontinued. However, Sapphire will continue to own the club building. The supervisory staffs will no longer be employed if the club closes and Sapphire will no longer pay the airport fee.

Required:

Decide whether Sapphire should discontinue the club operations. Show your computation