Blue Star Airline provides passenger airline service, using small jets. The airl
ID: 2451672 • Letter: B
Question
Blue Star Airline provides passenger airline service, using small jets. The airline connects four major cities: Charlotte, Pittsburgh, Detroit, and San Francisco. The company expects to fly 170,000 miles during a month. The following costs are budgeted for a month:
1
Fuel
$2,120,000.00
2
Ground personnel
788,500.00
3
Crew salaries
850,000.00
4
Depreciation
430,000.00
5
Total costs
$4,188,500.00
Blue Star management wishes to assign these costs to individual flights in order to gauge the profitability of its service offerings. The following activity bases were identified with the budgeted costs:
The size of the company’s ground operation in each city is determined by the size of the workforce. The following monthly data are available from corporate records for each terminal operation:
Three recent representative flights have been selected for the profitability study. Their characteristics are as follows:
Amount Descriptions
Flight income from operations
Fuel, crew, and depreciation costs
Ground personnel
Other income (expense)
Passenger revenue
Single plantwide factory overhead rate
1. Determine the fuel, crew, and depreciation cost per mile flown.
per mile
2. Determine the cost per arrival or departure by terminal city.
3. Use the information in (1) and (2) to construct a profitability report for the three flights. Each flight has a single arrival and departure to its origin and destination city pairs.
Blue Star Airline
Flight Profitability Report
For Three Representative Flights
1
Flight 101
Flight 102
Flight 103
2
3
4
5
6
4. Evaluate flight profitability by determining the break-even number of passengers required for each flight assuming all the costs of a flight are fixed. Round to the nearest whole number.
1
Fuel
$2,120,000.00
2
Ground personnel
788,500.00
3
Crew salaries
850,000.00
4
Depreciation
430,000.00
5
Total costs
$4,188,500.00
Explanation / Answer
1. Determine the fuel, crew, and depreciation cost per mile flown.
per mile
total cost = $850,000 +$2,120,000 +$430,000
=$3,400,000/170,000
=$20 per mile
2)
2. Determine the cost per arrival or departure by terminal city.
3)
4) Break even = Fixed cost
Let number of passengers be X
flight101 41,700/695 = 60 passengers
Flight 102 17,660/441.50 = 40 passengers
Flight 103 9550/382 = 25 passengers
Terminal city Ground personnel cost No of arrival/departures Cost per arrive Charlotte $256,000 320 $800 Pittusburgh 97,500 130 $750 Detroit 129,000 150 $860 San Francisco 306,000 340 $900