After reading through the information I'm a little confused on a few of the equations and why and where they pull info from each of the answers. After reading through the problem the three things needed are:A. Operating Income (annual) for the new WSM service?B1. What annual operating income can WSM expect from adopting Internet ticket sales? (More info is in the picture attached in the b-1. section)C. Ignoring the information in requirement (b), how many discounted tickets would WSM have to sell annually to earn an operating income of $4,800,000? Assume that the annual number of flights remains at 1,400 and that the discounted tickets would be evenly divided across the 1,400 flights. WSM Corporation is considering offering an alr shuttle service between Sao Paulo and Rlo de Janeiro. It plans to offer four flightsevery day (excluding certain holidays) for a total of 1,400 filights per year (= 350 days x 4 filghts per day). WSM has hired a consultant todetermine activity-based costs for this operation. The consultant's report shows the following.Activity Measure (cost Unit Cost(cost per unit ofactivity)$ 2,400 per flight5 per passenger$ 59, 90e per promotionActivityFlying and maintaining aircraftServing passengersAdvertising and marketingdriver)Number of flightsNumber of passengersNumber of promotionsWSM estimates the following annual information. With 21 advertising promotions, it will be able to generate demand for 40 passengersper flight at a fare of $330. The lease of the 60-seat alrcraft will cost $4,350,000. Other equipment costs will be $2,900,000.Administrative and other marketing costs will be $1,600,000.Requlred:a. What annual operating Income can WSM expect from this new service?b-1. WSM Is considering selling tickets over the Internet to save on commissions and other costs. It is estimated that the cost driverrate for filights would decrease by $50 as a result of internet sales. Administrative and other marketing costs would Increase by $1million. WSM estimates that the added convenience would generate a 5 percent increase In demand. All other costs and fares wouldremaln the same. What annual operating Income can WSM expect from adopting Internet ticket sales?b-2. Would you recommend that WSM adopt Internet ticket sales?c. Assume that WSM management decides not to adopt the Internet strategy, regardless of your answer to requirement (b). Instead, Itis now considering a plan to sell tickets at two prices. An unrestricted ticket (good for travel at any time on any day) would sell for $355. A discount ticket, good for reservations made In advance, would sell for $180. Management estimates that It can sell 35,000tickets (25 per flight) at the unrestricted alrfare of $355. All other data remaln the same.Ignoring the information in requirement (b), how many discounted tickets would WSM have to sell annually to earn an operatingIncome of $4,800,000? Assume that the annual number of flights remalns at 1,400 and that the discounted tickets would be evenlydivided across the 1,400 flights.

Answered: After reading through the information…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

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After reading through the information I'm a little confused on a few of the equations and why and where they pull info from each of the answers. After reading through the problem the three things needed are:

A. Operating Income (annual) for the new WSM service?

B1. What annual operating income can WSM expect from adopting Internet ticket sales? (More info is in the picture attached in the b-1. section)

C. Ignoring the information in requirement (b), how many discounted tickets would WSM have to sell annually to earn an operating income of $4,800,000? Assume that the annual number of flights remains at 1,400 and that the discounted tickets would be evenly divided across the 1,400 flights.

WSM Corporation is considering offering an alr shuttle service between Sao Paulo and Rlo de Janeiro. It plans to offer four flights
every day (excluding certain holidays) for a total of 1,400 filights per year (= 350 days x 4 filghts per day). WSM has hired a consultant to
determine activity-based costs for this operation. The consultant's report shows the following.
Activity Measure (cost Unit Cost(cost per unit of
activity)
$ 2,400 per flight
5 per passenger
$ 59, 90e per promotion
Activity
Flying and maintaining aircraft
Serving passengers
Advertising and marketing
driver)
Number of flights
Number of passengers
Number of promotions
WSM estimates the following annual information. With 21 advertising promotions, it will be able to generate demand for 40 passengers
per flight at a fare of $330. The lease of the 60-seat alrcraft will cost $4,350,000. Other equipment costs will be $2,900,000.
Administrative and other marketing costs will be $1,600,000.
Requlred:
a. What annual operating Income can WSM expect from this new service?
b-1. WSM Is considering selling tickets over the Internet to save on commissions and other costs. It is estimated that the cost driver
rate for filights would decrease by $50 as a result of internet sales. Administrative and other marketing costs would Increase by $1
million. WSM estimates that the added convenience would generate a 5 percent increase In demand. All other costs and fares would
remaln the same. What annual operating Income can WSM expect from adopting Internet ticket sales?
b-2. Would you recommend that WSM adopt Internet ticket sales?
c. Assume that WSM management decides not to adopt the Internet strategy, regardless of your answer to requirement (b). Instead, It
is now considering a plan to sell tickets at two prices. An unrestricted ticket (good for travel at any time on any day) would sell for $
355. A discount ticket, good for reservations made In advance, would sell for $180. Management estimates that It can sell 35,000
tickets (25 per flight) at the unrestricted alrfare of $355. All other data remaln the same.
Ignoring the information in requirement (b), how many discounted tickets would WSM have to sell annually to earn an operating
Income of $4,800,000? Assume that the annual number of flights remalns at 1,400 and that the discounted tickets would be evenly
divided across the 1,400 flights.

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