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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883

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BuyFindarrow_forward

Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883
Textbook Problem

Break-even sales, contribution margin
"Every airline has what is called a break-even load factor. Thai is. the percentage of scats the airline . . . (flies) . . . that it must sell ... to cover its costs. Since revenue and costs vary from one airline to another, so does the break-even factor. . . . Overall, the break-even load factor for the (airline) industry in recent years has been approximately 66 percent."
The airline industry is notorious for boom and bust cycles. Why is airline profitability very sensitive to these cycles? Do you think that during a down cycle the strategy' to consolidate routes and raise ticket prices is reasonable? What would nuke this strategy succeed or fail? Why? Source:

http://www.avjobs.coni/history/airline-economics.asp.

To determine

Concept Introduction:

Breakeven point: At This Point Company does not make any loss or profit because at this point sales are equal to an amount on which profit is equal to the zero.

To Identify:

During the down cycle company can consolidate routes and raise ticket prices is reasonable?

Explanation

Yes, this strategy to reduce no. of flights and consolidate routes and raise ticket prices is better to do in bust season. To reach at the breakeven point company can apply some policy in bust season...

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