Blue Star Airline provides passenger airline service, using small jets. The airl
ID: 2480512 • 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
Starting Questions
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
Final Question
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) Flight 101 Flight 102 Flight 103 Total Miles flown 2000 800 400 3200 Fuel 2120000 Crew salaries 850000 Depriciation 430000 Total 3400000 Number of miles pm 170000 Cost per mile 20 allocated on miles 40000 16000 8000 64000 2) charlotte Cost allocated sanfrancisco cost allocated Detroit cost allocated Pittsburg cost allocated Total Flight 101 80 427 80 900 1326.667 flight 102 50 267 50 860 1126.667 flight 103 20 107 20 750 856.6667 Total 150 800 80 900 50 860 20 750 3310 Ground personnel cost per passenger 800 900 860 750 3) Profitability Report Flight 101 Flight 102 Flight 103 Number of passengers 80 50 20 Ticket price per passenger 695 441.5 382 Sales revenue 55600 22075 7640 Less Fuel , crew salaries and depriciation 40000 16000 8000 Ground crew salaries 1326.67 1126.67 856.67 Net operating income 14273.33 4948.33 -1216.67 4) Breakeven analysis Flight 101 Flight 102 Flight 103 Sales revenue 55600 22075 7640 Less Variable cost Fuel cost 24941.18 9976.47 4988.24 Contribution per mile 30658.82 12098.53 2651.76 Fixed cost crew salaries & depricitaion 150588.24 60235.29 30117.65 ground salaries 1326.67 1126.67 856.67 Total fixed cost 151914.90 61361.96 30974.31 BEP - Passenger required 4.96 5.07 11.68 BEP - Passenger required ( rounded) 5 5 12 BEP = Total fixed cost / contribution per passenger