(a)
For the airline industry fuel is very important element because airplane cannot fly without fuel. And cost of fuel is very important for the company. A plane like a Boeing 747 uses roughly 1 gallon of fuel (around 4 liters) consistently.
As far as genuine working costs the greatest variable is the fuel cost. This is straightforwardly identified with the cost of unrefined petroleum. To endeavor to smooth out vacillations in the cost of fuel most expansive aircrafts fuel support.
To discuss:
How would you deal when you expect the financial statements of major airlines to be affected by the fuel price increase and the actions that the airlines would take in response?
Want to see the full answer?
Check out a sample textbook solutionChapter 12 Solutions
Cengagenowv2, 1 Term Printed Access Card For Rich/jones' Cornerstones Of Financial Accounting, 4th
- (b) What economic concept relates a cut in prices to an increase in demand? Explain how to use this concept to calculate the change in revenue from a 1% cut in prices. In Chicago, the reduction of fares by 23% led to 12% increase in revenue. What do these data imply about the concept in (b)?arrow_forwardDirection: Read the following independent cases given below. Provide necessary answer for all issues being asked. Provide a separate answer sheet for all your specific answers. A. The DIGITAL Company provided you with the following comparative Income Statement for your analysis. He wants you to enlighten the management on why the net profit decline. Sales Cost of Sales Gross Margin Operating Expenses Net Profit 2020 P680,000 170,000 P510,000 210,000 P300000 2021 P 570,000 200,000 P 370,000 100,000 P 270.000 Required: 1. Using Horizontal Analysis, calculate the peso change and the percentage changes. 2. Using Vertical Analysis, prepare the comparative common-size Income Statements. 3. Evaluate the results of your Analysis and explain to the management why the net profit declined.arrow_forwardProblem-solving 2: Dropping or Retaining a Flight Profits have been decreasing for several years at Pegasus Airlines. In an effort to improve the company's performance, consideration is being given to dropping several flights that appear to be unprofitable. A typical income statement for one round-trip of one such flight (flight 482) is as follows: Ticket revenue (175 seats x 40% occupancy x $200 ticket price)...... Variable expenses ($15 per person). Contribution margin Flight expenses: Salaries, flight crew.. Flight promotion. Depreciation of aircraft Fuel for aircraft Liability insurance. Salaries, flight assistants. Baggage loading and flight preparation Overnight costs for flight crew and assistants at destination.... Total flight expenses.. Net operating loss.. $14,000 1,050 12,950 1,800 750 1,550 5,800 4,200 1,500 1,700 300 17,600 $ (4,650) 100.0% 7.5 92.5% The following additional information is available about flight 482: a. Members of the flight crew are paid fixed annual…arrow_forward
- If Bohol Branch were eliminated, then its traceable fixed expenses could be avoided. The total common fixed expenses are merely allocated and would be unaffected. 1. What will be the new company profit (loss) if Bohol Branch is eliminated? 2. What will be the decrease in company profit if Bohol Branch is closed and 20% of its traceable fixed expense would remain unchanged while Cebu’s sales would decrease by 20%? SHOW SOLUTIONS FOR EACH REQUIREMENT.arrow_forward1. If the company accepts this offer and rejects some business from regular customers so as not to exceed capacity, what would be the total net operating income next year? 2. If the company rejects the offer of the foreign distributor, how much is the opportunity cost?arrow_forwardAirline pricing, considerations other than cost in pricing. Costal Airways is about to introduce a daily round-trip flight from New York to Los Angeles and is determining how to price its round-trip tickets. The market research group at Costal Airways segments the market into business and pleasure travelers. It provides the following information on the effects of two different prices on the number of seats expected to be sold and the variable cost per ticket, including the commission paid to travel agents:arrow_forward
- Sun Airlines is a commercial airline that targets business and non-business travelers. In recent months, the airline has been unprofitable. The company has break-even sales volume of 75% of capacity, which is significantly higher than the industry average of 65%. Sun's CEO, Neil Armstrong, is concerned about the recent string of losses and is considering a strategic plan that could reduce the break-even sales volume by increasing ticket prices. He has asked for your help in evaluating this plan. Write a brief memo to Neil Armstrong evaluating this strategy. Include your reasoning.arrow_forwardSun Airlines is a commercial airline that targets business and non-business travelers. In recent months, the airline has been unprofitable. The company has break-even sales volume of 75% of capacity, which is significantly higher than the industry average of 65%. Sun’s CEO, Neil Armstrong, is concerned about the recent string of losses and is considering a strategic plan that could reduce the break-even sales volume by increasing ticket prices. He has asked for your help in evaluating this plan.arrow_forwardABC Airlines is a commercial airline that targets business and nonbusiness travelers. In recent months, the airline has been unprofitable. The company has break-even sales volume of 75% of capacity, which is significantly higher than the industry average of 65%. ABC's CEO, Richard Buchanan, is concerned about the recent string of losses and is considering a strategic plan that could reduce the break-even sales volume by increasing ticket prices. He has asked for your help in evaluating this plan. Instruction: As management accountants, write a brief memo to Richard Buchanan evaluating this strategy by discussing the advantages/disadvantages of increasing the ticket prices and its effect on the break even sales volume for ABC Airlines.arrow_forward
- Case Study The coronavirus pandemic drastically reduced the number of people flying in the United States. Because of this, every major airline experienced a drop in stock prices from February 2020 to November 2020. But these drops ranged from 57% for American Airlines to 21% for Southwest Airlines. Why such a difference? Investopedia points out that Southwest has extremely efficient operations, low-cost pricing, and innovative logistics solutions. In addition, they incorporate customer experience and forward planning into their strategy. All of these things helped Southwest to weather the pandemic, and they all require that Southwest maintains careful control over its operations. One of the other things that helped Southwest during the pandemic was their superior service desk performance. They achieved this performance, in part, through measuring key factors in customer service, looking at customer service leaders (benchmarking), and making changes to bring their customer service costs…arrow_forwardManagement is considering the discontinuance of the manufacture and sale of Product G2 at the beginning of the current year. The discontinuance would have no effect on the total fixed costs and expenses or on the sales of Products F1 and H3. What is the amount of change in net income for the current year that will result from the discontinuance of Product G2? P30,000 decrease P20,000 decrease P20,000 increase P30,000 increasearrow_forwardAir Americo is about to introduce a daily round-trip flight from New York to Los Angeles and is determining how to price its round-trip tickets. The market research group at Air Americo segments the market into business and pleasure travelers. It provides the following information on the effects of two different prices on the number of seats expected to be sold and the variable cost per ticket, including the commission paid to travel agents: Price Charged Variable Costs per Ticket # of Seats Expected to be Sold Business Pleasure 800 2,100 75 300 150 185 285 30 Pleasure travelers start their travel during one week, spend at least I weekend at their destination, and return the following week or thereafter. Business travelers usually start and complete their travel within the same workweek. They do not stay over weekends. Assume that round-trip fuel costs are fixed costs of $24,500 and that fixed costs allocated to the round-trip flight for airplane-lease costs, ground services, and…arrow_forward
- Cornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage LearningManagerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College PubAuditing: A Risk Based-Approach (MindTap Course L...AccountingISBN:9781337619455Author:Karla M Johnstone, Audrey A. Gramling, Larry E. RittenbergPublisher:Cengage Learning