A further consideration of the investment proposal by the Hotel Manager concerns the pricing of airport services: Average direct costs are estimated to be £10 per passenger (including on-board refreshments). Total related annual overhead costs for the year are £24,000. A total of 6,000 passengers are estimated over the year. The most popular trip is forecast to be to Bristol Airport, as this is larger than Exeter Airport. (Appendix 1). An accounting-based price is to be calculated for initial discussions. Head Office has suggested a 40% mark-up on the full cost as a basis for pricing. Historically, an absorption rate basis has been used. The activity-based costing (ABC) method is under consideration by Buenos Dias plc Head Office for implementation across the chain within the next financial year. The following information has been estimated for this purpose: Activity Reservations & Administration (RA) Coach Provision & Maintenance (CPM) Driver & Guest Services (DGS) Cost £ 3,000 15,000 6,000 Driver Total Number of seats booked 6,000 Number of Trips Number of Trips 500 500 Bristol Airport 1,000 200 200 Requirement: Section C of your report to the Exeter hotel manager. Evaluate and advise on costing and pricing considerations of the Bristol Airport service.
A further consideration of the investment proposal by the Hotel Manager concerns the pricing of airport services: Average direct costs are estimated to be £10 per passenger (including on-board refreshments). Total related annual overhead costs for the year are £24,000. A total of 6,000 passengers are estimated over the year. The most popular trip is forecast to be to Bristol Airport, as this is larger than Exeter Airport. (Appendix 1). An accounting-based price is to be calculated for initial discussions. Head Office has suggested a 40% mark-up on the full cost as a basis for pricing. Historically, an absorption rate basis has been used. The activity-based costing (ABC) method is under consideration by Buenos Dias plc Head Office for implementation across the chain within the next financial year. The following information has been estimated for this purpose: Activity Reservations & Administration (RA) Coach Provision & Maintenance (CPM) Driver & Guest Services (DGS) Cost £ 3,000 15,000 6,000 Driver Total Number of seats booked 6,000 Number of Trips Number of Trips 500 500 Bristol Airport 1,000 200 200 Requirement: Section C of your report to the Exeter hotel manager. Evaluate and advise on costing and pricing considerations of the Bristol Airport service.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:A further consideration of the investment proposal by the Hotel Manager concerns the pricing of airport
services:
●
Average direct costs are estimated to be £10 per passenger (including on-board refreshments).
Total related annual overhead costs for the year are £24,000.
A total of 6,000 passengers are estimated over the year.
The most popular trip is forecast to be to Bristol Airport, as this is larger than Exeter Airport. (Appendix
1).
An accounting-based price is to be calculated for initial discussions. Head Office has suggested a 40%
mark-up on the full cost as a basis for pricing. Historically, an absorption rate basis has been used. The
activity-based costing (ABC) method is under consideration by Buenos Dias plc Head Office for
implementation across the chain within the next financial year. The following information has been
estimated for this purpose:
Cost £
3,000
Coach Provision & Maintenance (CPM) 15,000
Driver & Guest Services (DGS)
6,000
Activity
Reservations & Administration (RA)
Driver
Number of seats booked
Number of Trips
Number of Trips
Total
6,000
500
500
Bristol
Airport
1,000
200
200
Requirement: Section C of your report to the Exeter hotel manager.
Evaluate and advise on costing and pricing considerations of the Bristol Airport service.
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