a ferry company knows that many of its customers are taking their cars to the contin 644155

A ferry company knows that many of its customers are taking their cars to the continent by ferry but are returning by train through the Channel Tunnel. The company is considering whether or not to make a special offer of ‘return journey for the price of a single journey’ for a period of one month. It is predicted that this will attract 200 additional customers in the month but will lose the return fare portion of journeys by 50 existing customers. The net gain in fare revenue in the month is estimated as £3,750. Additional staff will be required to manage car flow at the port, but these staff can be transferred from other work to cover the additional activity during the month. It is estimated that the time they spend on this exercise will be worth £800 of their salary bill. The additional customers will spend money in the bar and restaurants during the ferry crossing. It is estimated that the additional gross profit will be £4,000 in the month. One additional catering employee will be hired from an agency at a cost of £600 for the month. Fixed overhead costs of £8,000 for the month will not be affected by the special offer. For the purposes of cost recording the fixed overhead will be apportioned over all journeys to give a cost per journey of £60.

The relevant benefits and costs are:

Note that time spent on this activity by car parking staff is not relevant because their salaries would be paid in any event. Also the allocation of fixed overheads is not relevant because these do not change as a result of the proposed course of action.