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Solutions -- Week 15

# Solutions -- Week 15 - WEEK CLS DATES[M-W 15 DATES[T-Th GNB...

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GNB Problem Solutions – Week-by-Week page 1 of 6 WEEK 15 GNB ASSIGNED PROBLEM SOLUTIONS BUAD 250B – FALL 2009 CLS DATES [M-W] DATES [T-Th] TOPICS READINGS ASSIGNMENTS [TO BE COMPLETED BY DATE ASSIGNED] 27 Nov 30 Dec 1 Relevant Costs for Decision Making Ch. 13 PR: 13-18, 19 In-class: 13-23 28 Dec 2 Dec 3 Final Exam Review Prepare: Final Review Problems Wed. DEC. 9 All sections FINAL EXAM [350 points] Time: 2:00pm to 4:00pm Location to be announced Problem 13-18 1. Contribution margin lost if the flight is discontinued . ........................................................................................ \$(12,950) Flight costs that can be avoided if the flight is discontinued: Flight promotion . .................................................................................. \$ 750 Fuel for aircraft . .................................................................................... 5,800 Liability insurance (1/3 × \$4,200) . ........................................................ 1,400 Salaries, flight assistants . .................................................................... 1,500 Overnight costs for flight crew and assistants . .................................... 300 9,750 Net decrease in profits if the flight is discontinued . ................................. \$ (3,200 ) The following costs are not relevant to the decision: Cost Reason Salaries, flight crew Fixed annual salaries, which will not change. Depreciation of aircraft Sunk cost. Liability insurance (two-thirds) Two-thirds of the liability insurance is unaffected by this decision. Baggage loading and flight preparation This is an allocated cost that will continue even if the flight is discontinued.

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GNB Problem Solutions – Week-by-Week page 2 of 6 Problem 13-18 (continued) Alternative Solution: Keep the Flight Drop the Flight Difference: Net Operating Income Increase or (Decrease) Ticket revenue . .................................................................... \$14,000 \$ 0 \$(14,000) Variable expenses . .............................................................. 1,050 0 1,050 Contribution margin . ............................................................ 12,950 0 (12,950 ) Less flight expenses: Salaries, flight crew . ........................................................ 1,800 1,800 0 Flight promotion . ............................................................. 750 0 750 Depreciation of aircraft . ................................................... 1,550 1,550 0 Fuel for aircraft . ............................................................... 5,800 0 5,800 Liability insurance . .......................................................... 4,200 2,800 1,400 Salaries, flight assistants . ............................................... 1,500 0 1,500 Baggage loading and flight preparation . ......................... 1,700 1,700 0 Overnight costs for flight crew and assistants at destination . ............................................. 300 0 300 Total flight expenses . .......................................................... 17,600
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Solutions -- Week 15 - WEEK CLS DATES[M-W 15 DATES[T-Th GNB...

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