coursehero_chapter 11 problems

coursehero_chapter 11 problems - PROBLEM 11-12B Dropping or...

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PROBLEM 11-12B Dropping or Retaining a Flight Dropping or Retaining a Flight (1) Decrease in net operating income if the flight is dropped: $12,900 Profits have been decreasing for several years at Wright Airlines. In an effort to improve the company’s performance, consideration is being given to dropping several flights tha A typical income statement for one such flight (flight 581) is given below (per flight): Ticket revenue (200 passengers × 40% occupancy × $400 per pass $32,000 32000 $32,000 32000 Variable expenses (200 passengers × 40% occupancy × $20 per pa Contribution margin Flight expenses: Salaries, flight crew 2,400 2,400 2400 Flight promotion 3,000 3000 3,000 3000 3000 3000 Depreciation of aircraft 8,000 8,000 8000 Fuel for aircraft 10,200 10200 10,200 10200 10200 10200 Liability insurance 7,200 2400 7,200 4800 2400 2400 2400 Salaries, flight assistants 1,200 1200 1,200 1200 1200 1200 Baggage loading and flight preparation 800 800 800 Overnight costs for flight crew and assistants at destination 700 Total flight expenses 16800 ????? 16000 16000 16800 Net operating loss 15200 -16000 15200 17500 16800 The following additional information is available about flight 581: a. Members of the flight crew are paid fixed annual salaries, whereas the flight assistants are paid by the flight. b. c. d. If flight 581 is dropped, Wright Airlines has no authorization at present to replace it with another flight. e. Aircraft depreciation is due entirely to obsolescence. Depreciation due to wear and tear is negligible. f. Dropping flight 581 would not allow Wright Airlines to reduce the number of aircraft in its fleet or the number of flight crew on its payroll. Required: 1 Prepare an analysis showing what impact dropping flight 581 would have on the airline’s profits. 2 PROBLEM 11-13B Make or Buy a Component (1) The part can be made inside the company for $8.00 less per unit. 1,600 1,600 1,600 1,600 30,400 30,400 30,400 30,400 700 700 700 700 700 33,500 33,500 $ (3,100) $ (3,100) One-third of the liability insurance is a special charge assessed against flight 581 because in the opinion of the insurance company, the destination of the flight is in a “high-risk” area. The remaining two-thirds would be unaffected by a decision to drop flight 581. The baggage loading and flight preparation expense is an allocation of ground crews’ salaries and depreciation of ground equipment. Dropping flight 581 would have no effect on the company’s total baggage loading and flight preparation expenses. The airline’s scheduling officer has been criticized because only about 50% of the seats on Wright Airlines flights are being filled compared to an industry average of 60%. The scheduling officer has explained that Wright Airlines average seat occupancy could be improved considerably by eliminating about 10% of its flights, but that doing so would reduce profits. Explain how this could happen.
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52,000 Per Unit Units Per Year Direct materials $30 ### Direct labor
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coursehero_chapter 11 problems - PROBLEM 11-12B Dropping or...

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