Assume that a Hong Kong tourist agency approached the president of the airline about flying chartered tourist flights from Manila to Hong Kong. The tourist agency has offered the airline P180,000 per round-trip flight on a jumbo jet. Given the airline’s usual occupancy rate and airfares, a round-trip jumbo jet generates revenue of P270,000. Sales Revenues: Passenger P270,000 Cargo 40,000 P310,000 Variable Costs 120,000 Fixed Costs 100,000 220,000 Net Income 90,000 If the offer is accepted, the company will not incur reservations and ticketing costs estimated to be P10,000. There is also excess capacity to cater to the additional flights of the special offer. 1. Determine the relevant/differential costs. 2. Should the offer be accepted?
Assume that a Hong Kong tourist agency approached the president of the airline about flying chartered tourist flights from Manila to Hong Kong. The tourist agency has offered the airline P180,000 per round-trip flight on a jumbo jet. Given the airline’s usual occupancy rate and airfares, a round-trip jumbo jet generates revenue of P270,000.
|
Sales Revenues: |
|
|
|
Passenger |
P270,000 |
|
|
Cargo |
40,000 |
P310,000 |
|
Variable Costs |
120,000 |
|
|
Fixed Costs |
100,000 |
220,000 |
|
Net Income |
|
90,000 |
If the offer is accepted, the company will not incur reservations and ticketing costs estimated to be P10,000. There is also excess capacity to cater to the additional flights of the special offer.
1. Determine the relevant/differential costs.
2. Should the offer be accepted?
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