B qualit y level o f easyspread 20 it is crit ical

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: 0 2. If fare is Commissio n at 8% of $480 Net cash per ticket Food and beverage cost per ticket Contribut ion margin per passenger Total contribution margin fro m passengers per flight ($421.60 × 212) All other costs are irrelevant. $ $89,379.20 On the basis of quantitative factors alone, Air Fr isco should decrease its fare to $480 because reducing the fare gives Air Frisco a higher contribut ion margin fro m passengers ($89,379.20 versus $88,000). 3. In evaluat ing whether Air Frisco should charter its plane to Travel International, we compare the charter alternat ive to the so lut ion in requirement 2 because requirement 2 is preferred to requirement 1. Under requirement 2, contribut ion from passengers Deduct fuel costs Total contribution per flight $89,379.20 14,000.00 $75,379.20 Air Frisco gets $74,500 per flight fro m chartering the plane to Travel Internat ional. On the basis of quantitative financial factors, Air Frisco is better off not chartering the plane and, instead, lowering its own fares. Other qualitat ive factors that Air Frisco should consider in coming to a decisio n are a. The lower risk fro m chartering it s plane relative to the uncertaint ies regarding the number of passengers it might get on its scheduled flights. b. The stabilit y o f the relationship between Air Frisco and Travel International. If this is not a long­term arrangement, Air Frisco may lose current market share and not benefit from sustained charter revenues. 11­19 11­31 (30 min.) Relevant costs, opportunity costs. 1. Easyspread 2.0 has a higher relevant operating income than Easyspread 1.0. Based on this analys is, Easyspread 2.0 should be introduced immediately: Easyspread 1.0 $160 $ 0 0 $160 Easyspread 2.0 $195 $30 30 $165 Relevant revenues Relevant costs: Manuals, diskettes, compact discs Total relevant costs Relevant operating income Reasons for other cost items being irrelevant are Easyspread 1.0 · Manuals, diskettes—already incurred · Development costs—already incurred · Marketing and administrative—fixed costs of period Easyspread 2.0 · Development costs—already incurred · Marketing and administration—fixed costs of period Note that total market ing and administration costs will not change whether Easyspread 2.0 is introduced on July 1, 2009, or on October 1, 2009. 2. Other factors t...
View Full Document

This note was uploaded on 10/11/2010 for the course ACCT 321 taught by Professor Cole during the Spring '10 term at University of Miami.

Ask a homework question - tutors are online