Fundamentals Of Cost Accounting (6th Edition)
6th Edition
ISBN: 9781259969478
Author: WILLIAM LANEN, Shannon Anderson, Michael Maher
Publisher: McGraw Hill Education
expand_more
expand_more
format_list_bulleted
Concept explainers
Videos
Textbook Question
Chapter 4, Problem 27CADQ
Many airline frequent-flier programs upgrade elite (high volume) flyers one, three, or five days in advance from economy to first class. What are the differential costs of doing this? What are the opportunity costs? What are the opportunity costs of not doing this?
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
This question builds on your work from B-1. Competition is fierce for the Chicago to Atlanta route, and the airline realizes that it may need to reduce the current ticket price. They ask you to provide projections for number of reservations, number of denied passenger check ins (due to overbooking), penalties, sales, net income, and profit margin for this route at different ticket prices. The average number of reservations for this route is 184 when the ticket price is $420, use those figures as a base for your calculations. The airline conducted a price sensitivity analysis and determined that for every $20 increase in ticket price, demand will decrease by 1 ticket reservation. Similarly, ticket sales will increase by 1 reservation for every $20 decrease in ticket price. Using an appropriate data table, calculate the number of reservations, number of passengers denied check ins (due to overbooking), total penalties, total sales, net income, and profit margin (as a percentage) for…
Airline 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:
Global Air is considering a new flight between Atlanta and Los Angeles. The average fare per seat for the flight is $780. The costs associated with the flight are as follows:
Fixed costs for the flight:
Crew salaries................................................
$ 4,860
Operating costs...........................................
50,000
Aircraft depreciation..................................
25,000
Total.........................................................
$ 79,860
Variable costs per passenger:
Passenger check-in.....................................
$ 20
Operating costs...........................................
100
Total.........................................................
$ 120
The airline estimates that the flight will sell 170 seats.
a. Determine the break-even number of passengers per flight.
b. Based on your answer in (a), should the airline add this flight to its…
Chapter 4 Solutions
Fundamentals Of Cost Accounting (6th Edition)
Ch. 4 - Fixed costs are often defined as fixed over the...Ch. 4 - What is the difference between a sunk cost and a...Ch. 4 - Are sunk costs ever differential costs? Explain.Ch. 4 - What is the difference between short-run and...Ch. 4 - What costs are included in the full cost of a...Ch. 4 - What costs are included in the full cost of a...Ch. 4 - What costs should be considered for a special...Ch. 4 - What are life-cycle product costing and pricing?Ch. 4 - Prob. 9RQCh. 4 - What do the terms target cost and target price...
Ch. 4 - What is predatory pricing? Why is it illegal in...Ch. 4 - What is dumping? What role would a cost accountant...Ch. 4 - What is price discrimination? How could a cost...Ch. 4 - If we want to maximize profit, why do we use unit...Ch. 4 - A company has learned that a particular input...Ch. 4 - Why are production constraints important in...Ch. 4 - What are some nonfinancial factors in decisions to...Ch. 4 - Prob. 18RQCh. 4 - Prob. 19CADQCh. 4 - Prob. 20CADQCh. 4 - As a marketing manager for an airline, would you...Ch. 4 - Prob. 22CADQCh. 4 - You buy an airline ticket to New York City to see...Ch. 4 - Consider the Business Application item,...Ch. 4 - One of your acquaintances notes, This whole...Ch. 4 - A manager in your organization just received a...Ch. 4 - Many airline frequent-flier programs upgrade elite...Ch. 4 - Consider the opportunity costs you identified in...Ch. 4 - Prob. 29CADQCh. 4 - Prob. 30CADQCh. 4 - Prob. 31CADQCh. 4 - Prob. 32CADQCh. 4 - Prob. 33CADQCh. 4 - Prob. 34CADQCh. 4 - Prob. 35CADQCh. 4 - Prob. 36ECh. 4 - Prob. 37ECh. 4 - Pricing Decisions Assume that MTA Sandwiches sells...Ch. 4 - Pricing Decisions Rutkey Collectibles is a small...Ch. 4 - Prob. 40ECh. 4 - Special Order Fairmount Travel Gear produces...Ch. 4 - Target Costing and Pricing Sids Skins makes a...Ch. 4 - Target Costing and Pricing Domingo Corporation...Ch. 4 - Target Costing and Purchasing Decisions Mira Mesa...Ch. 4 - Target Costing Kearney, Inc., makes kitchen tools....Ch. 4 - Make-or-Buy Decisions Mobility Partners makes...Ch. 4 - Make-or-Buy Decisions Mels Meals 2 Go purchases...Ch. 4 - Prob. 49ECh. 4 - Dropping Product Lines Freeflight Airlines is...Ch. 4 - Pappy’s Toys makes two models of a metal...Ch. 4 - Christine’s Chronographs makes two models of a...Ch. 4 - Unter Components manufactures low-cost navigation...Ch. 4 - Special Orders Sherene Nili manages a company that...Ch. 4 - Prob. 55PCh. 4 - M. Anthony, LLP, produces music in a studio in...Ch. 4 - Davis Kitchen Supply produces stoves for...Ch. 4 - Make or Buy King City Specialty Bikes (KCSB)...Ch. 4 - Prob. 59PCh. 4 - Prob. 60PCh. 4 - Prob. 61PCh. 4 - Prob. 62PCh. 4 - Prob. 63PCh. 4 - Agnew Manufacturing produces and sells three...Ch. 4 - Prob. 65PCh. 4 - Power Music owns five music stores, where it sells...Ch. 4 - You have been asked to assist the management of...Ch. 4 - Prob. 68PCh. 4 - Prob. 69PCh. 4 - Prob. 70PCh. 4 - Prob. 71PCh. 4 - Prob. 72PCh. 4 - Slavin Corporation manufactures two products,...Ch. 4 - Prob. 74PCh. 4 - Prob. 75P
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- On-time arrivals, lost baggage, and customer complaints are three measures that are typically used to measure the quality of service being offered by airlines. Suppose that the following values represent the on-time arrival percentage, amount of lost baggage, and customer complaints for 10 U.S. airlines. a. Based on the data above, if you randomly choose a Delta Air Lines flight, what is the probability that this individual flight will have an on-time arrival? b. If you randomly choose 1 of the 10 airlines for a follow-up study on airline quality ratings, what is the probability that you will choose an airline with less than two mishandled baggage reports per 1,000 passengers? c. If you randomly choose 1 of the 10 airlines for a follow-up study on airline quality ratings, what is the probability that you will choose an airline with more than one customer complaint per 1,000 passengers? d. What is the probability that a randomly selected AirTran Airways flight will not arrive on time?arrow_forwardAnalyze Pacific Airways Pacific Airways provides air travel services between Los Angeles and Seattle. Cost information per flight is as follows: Each flight has a capacity of 150 seats, with an average of 125 seats sold per flight at an average ticket price of 180. Assume Pacific Airways is considering a new service that would provide tickets at half price. Passengers would need to fly standby to receive the discount, but would be provided a flight for a given day of travel. An analysis revealed that an average of 8 existing passengers would use the new discounted tickets for travel. In addition, 15 new passengers would be attracted to the offer. a. Determine the contribution margin per passenger for the full-priced ticket. b. Determine the break-even number of seats sold per flight. c. Determine the contribution margin per passenger for discounted tickets. d. Should Pacific Airways offer the discounted ticket plan? Answer the question by computing the incremental contribution margin per flight for the plan.arrow_forwardCarpetland salespersons average 8,000 per week in sales. Steve Contois, the firms vice president, proposes a compensation plan with new selling incentives. Steve hopes that the results of a trial selling period will enable him to conclude that the compensation plan increases the average sales per salesperson. a. Develop the appropriate null and alternative hypotheses. b. What is the Type I error in this situation? What are the consequences of making this error? c. What is the Type II error in this situation? What are the consequences of making this error?arrow_forward
- Next week, Super Discount Airlines has a flight from New York to Los Angeles that will be booked to capacity. The airline knows from past history that an average of 25 customers (with a standard deviation of 15) cancel their reservation or do not show for the flight. Revenue from a ticket on the flight is $125. If the flight is overbooked, the airline has a policy of getting the customer on the next available flight and giving the person a free round-trip ticket on a future flight. The cost of this free round-tripticket averages $250. Super Discount considers the cost of flying the plane from New York to Los Angeles at a sunk cost. By how many seats should Super Discount overbook the flight?arrow_forwardSur Travel Company intends to sell its customers a special round-trip airline ticket package to Salalah. The Company will be able to purchase the package from Oman Air for OMR 150 each. The round-trip tickets will be sold for OMR 200 each and the airline intends to reimburse Sur Travel for any unsold ticket packages. Fixed costs for Sur Travel include OMR 10,000 in advertising costs.How many ticket packages will Sur Travel need to sell to break even? a. 29 packages b. 200 packages c. 50 packages d. 67 packagesarrow_forwardBreak into teams and identify costs that an airline such as Delta Air Lines would incur on a flight from Green Bay to Minneapolis. (1) Identify the individual costs as variable or fixed. (2) Assume that Delta is trying to decide whether to drop this flight because it seems to be unprofitable. Determine which costs are likely to be saved if the flight is dropped.arrow_forward
- Fares and Fees in the Airline Industry Navigating the various websites for low fares, avoidingfees for checked bags and priority seating, and finding the right flight schedule can be a real challenge for the average airline passenger. The complexity of options and sources for purchasing a tickethave expanded significantly in recent years. And the outlook for the future is far more complex, asnew search sites (Google, Hipmunk, etc.) become available and some airlines seek more control overwhere and how tickets on their flights are purchased. According to Forrester Research, an independent research company, the airlines want passengers to buy tickets based on value and not on lowprices. They do not want passengers to comparison shop. One major airline even announced that itwanted to deliver fare information directly to customers and to bypass search systems such as Expediaor Travelocity.Required1. Explain why you think competition in the airline industry is a cost leadership or a…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. Write a brief memo to Neil Armstrong evaluating this strategy. Include your reasoning.arrow_forwardAs an analyst at Delta Airlines, you are asked to help the operations staff. Operations has identified a new method of loading baggage that is expected to result in a 40 percent reduction in labor time but no changes in any other costs. The current labor cost to load bags is $5 per bag. Other costs are $4 per bag. Required: a-1 What differential costs should the operations staff consider for the decision to use the new method next year? a-2. What would be the cost savings per bag using it? How would management use the information in requirement (a) and any other appropriate information to proceed with the contemplated use of the new baggage loading method? Complete this question by entering your answers in the tabs below. Tab Req A1 Tab Reg A2 Tab Reg B Reg A1 What differential costs should the operations staff consider for the decision to use the new method next year? Differential cost _______________ Reg A2 What would be the cost savings per bag using it?…arrow_forward
- A corporate executive jet with a seating capacity of 20 has the following cost factors: The company flies three round trips from Boston to London and back perweek. a distance of 3.280 miles one way. How many passengers must be carried on an average round trip in order to justify the use of the jet if the alternative commercial airline first-class round-trip fare is $3,400 per passenger? The firm's MARR is 15%. ( Ignore income-tax consequences.)arrow_forwardAs an analyst at Delta Airlines, you are asked to help the operations staff. Operations has identified a new method of loading baggage that is expected to result in a 35 percent reduction in labor time but no changes in any other costs. The current labor cost to load bags is $12 per bag. Other costs are $11 per bag. Required: a-1. What differential costs should the operations staff consider for the decision to use the new method next year?a-2. What would be the cost savings per bag using it?b. How would management use the information in requirement (a) and any other appropriate information to proceed with the contemplated use of the new baggage loading method? Differential costs would not play a significant role in management's decision. Management would use the information, but would also want to know the effect on quality. Management would make their decision based strictly on the differential costs.arrow_forwardAs an analyst at Delta Airlines, you are asked to help the operations staff. Operations has identified a new method of loading baggage that is expected to result in a 35 percent reduction in labor time but no changes in any other costs. The current labor cost to load bags is $12 per bag. Other costs are $11 per bag. Required: a-1. What differential costs should the operations staff consider for the decision to use the new method next year?a-2. What would be the cost savings per bag using it?b. How would management use the information in requirement (a) and any other appropriate information to proceed with the contemplated use of the new baggage loading method?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Essentials of Business Analytics (MindTap Course ...StatisticsISBN:9781305627734Author:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. AndersonPublisher:Cengage Learning
Managerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College Pub
Financial And Managerial AccountingAccountingISBN:9781337902663Author:WARREN, Carl S.Publisher:Cengage Learning,
Essentials of Business Analytics (MindTap Course ...
Statistics
ISBN:9781305627734
Author:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson
Publisher:Cengage Learning
Managerial Accounting
Accounting
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:South-Western College Pub
Financial And Managerial Accounting
Accounting
ISBN:9781337902663
Author:WARREN, Carl S.
Publisher:Cengage Learning,
Cost control, Why cost control is necessary for a business?; Author: Educationleaves;https://www.youtube.com/watch?v=yMg3gJx48Fg;License: Standard youtube license