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I just do not get this one at all. I have tried for about an hour and it ended u

ID: 2385015 • Letter: I

Question

I just do not get this one at all. I have tried for about an hour and it ended up wrong. So I need help:

PROBLEM 12-18 NUMBER 2.
The company's tour director has been criticized because only about 50% of the seats on Blueline's tour are being filled as compared to an indurstry average of 60%. The tour diretor as explained that Blueline's average seat occupancy could be improved considerably by eliminating about 10% of its tours, but that doing so would reduce profits. Explain how this could happen.

I just cannot understand this, please help.

Explanation / Answer

If the company drops tours with lower-than-average seat occupancy, it could increase its average seat occupancy. However, if the tours that are eliminated have a positive contribution margin (exceeds costs), it will reduce the company’s profits. Additionally, some of these tours could act as the gateway in getting customers interested in tours that are more profitable.