Trans-Mountain Bus Lines operates between Vancouver and the interior of B.C.
connecting Vancouver, Abbotsford, Hope, Merritt, Penticton, Kelowna, and Kamloops.
The company is examining the individual bus runs from Hope to Kamloops and return.
The company would like to eliminate any runs that result in a loss for the company on a
fully allocated basis.
To accomplish this goal, management hired you as senior cost analyst in the
Administration Department. Your task is to determine which, if any, unprofitable
operations can be discontinued.
Company costing personnel have audited the runs and have developed the need
information displayed below (Image Attached)

NOTE: * All revenues and costs are per day.
The company overhead costs associated with the Hope to Kamloops route total $1,500
per day. This cost is for management, terminal expenses, and a host of costs allocated
by the corporate headquarters.
The policy of the firm is to eliminate any run that shows a loss after run costs and a
prorated share of overhead costs are subtracted. On the Hope-Kamloops route, this
prorated share is $300 per bus per day (the total $1,500 divided by the number of buses
in the route). If a bus run is eliminated, the total overhead of $1,500 will remain (only
the costs per bus run will be eliminated). Extra bus equipment is sold when not needed
in the schedule.

CASE QUESTIONS
1. Should any one of the 5 of the bus runs be eliminated? Show the calculations you
used to arrive at this decision.
2. What happens when a bus run (or subsequent ones) is eliminated? (Assume that
passengers from an eliminated run are lost to the company.) Show your calculations
and describe your analysis when implementing the company policy.

Transcribed Image Text:

Company costing personnel have audited the runs and have developed the need information displayed below: Bus Run Leave # Hope Leave Kamloops # passengers Total round- per round-trip trip revenue* Cost per bus run* 104 6:00 a.m. 11:00 a.m. 40 $640 $500 102 7:00 a.m. 12:00 Noon 60 960 500 100 8:00 a.m. 5:00 p.m. 90 1,440 500 101 4:00 a.m. 9:00 p.m. 70 1,120 500 103 5:00 p.m. 10:00 p.m. 50 800 500 $4,960 $2,500 NOTE: * All revenues and costs are per day. Company costing personnel have audited the runs and have developed the need information displayed below: Bus Run Leave # Hope Leave Kamloops # passengers Total round- per round-trip trip revenue* Cost per bus run* 104 6:00 a.m. 11:00 a.m. 40 $640 $500 102 7:00 a.m. 12:00 Noon 60 960 500 100 8:00 a.m. 5:00 p.m. 90 1,440 500 101 4:00 a.m. 9:00 p.m. 70 1,120 500 103 5:00 p.m. 10:00 p.m. 50 800 500 $4,960 $2,500 NOTE: * All revenues and costs are per day.