Operating Income: West Coast Air Case Study

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1. The operating income that West Coast Air earns on a one-way flight from SF to Fiji is Revenue variable fuel costs commission food & beverage = $36,487.50 The net income is a loss of $31,512.50 per flight. Revenue 56875 VC Fuel 14000 FB exp 700 Comm 5687.5 Op Inc 36487.5 2. In order to figure out if the company should lower the cost of the flight, the calculation would incorporate the new price and demand figures. The new operating income would be $38,576 under this scenario. Without taking into account that the company is still losing a lot of money, yes, it should lower the price for the flight because this increases the contribution that the company earns. Revenue 59360 VC Fuel 14000 FB exp 848 Comm 5936 Op Inc 38576 3. The base case is the $280 flight option, where d= 212 per flight. This gives the company a loss of $6,120,192. If the travel agent is going to deliver a better result, then that option should be undertaken. The financials for the new flights are as follows. The revenue is going to be $75,000 and there are no variable costs. There is no travel agent to pay commission to, and Travel International is picking up the costs associated with the food and beverage service, as well as the cost of fuel. Thus, the contribution to fixed costs is $75,000. This is much higher than the contribution West Coast Air normally gets from a flight. The full financials are as follows: Revenue 75,000 Op Inc 75000 FC Lease 53000 FC Service 7500

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