Fly High Airlines pays its pilots a salary of $14,000 per month. Jet fuel costs $40 per mile flown. Depreciation for each plane is $7,500 per month. Maintenance is performed at a cost of $3,000 per month. The number of passengers per trip varies with each flight. The number of passengers for May totaled 31,680, with the number of passengers for June totaling 34,600 for trips between Miami and Atlanta, a total distance of 660 miles. Required 1.What effect does the change in the number of passengers have on the following cost of each passenger that flies with Fly High Airlines from Miami to Atlanta? Explain your choices. Pilot's salary Jet fuel Depreciation Maintenance 2.Complete the table below to show the total cost of the following number of miles flown for a particular month: 31,680 and 34,320 miles. [Table] 3.Identify the behavior of Fly High Airlines’ total cost behavior based on your answer to part B. Explain your choice.
Cost-Volume-Profit Analysis
Cost Volume Profit (CVP) analysis is a cost accounting method that analyses the effect of fluctuating cost and volume on the operating profit. Also known as break-even analysis, CVP determines the break-even point for varying volumes of sales and cost structures. This information helps the managers make economic decisions on a short-term basis. CVP analysis is based on many assumptions. Sales price, variable costs, and fixed costs per unit are assumed to be constant. The analysis also assumes that all units produced are sold and costs get impacted due to changes in activities. All costs incurred by the company like administrative, manufacturing, and selling costs are identified as either fixed or variable.
Marginal Costing
Marginal cost is defined as the change in the total cost which takes place when one additional unit of a product is manufactured. The marginal cost is influenced only by the variations which generally occur in the variable costs because the fixed costs remain the same irrespective of the output produced. The concept of marginal cost is used for product pricing when the customers want the lowest possible price for a certain number of orders. There is no accounting entry for marginal cost and it is only used by the management for taking effective decisions.
Fly High Airlines pays its pilots a salary of $14,000 per month. Jet fuel costs $40 per mile flown.
Required
1.What effect does the change in the number of passengers have on the following cost of each passenger that flies with Fly High Airlines from Miami to Atlanta? Explain your choices.
Pilot's salary
Jet fuel
Depreciation
Maintenance
2.Complete the table below to show the total cost of the following number of miles flown for a particular month: 31,680 and 34,320 miles.
[Table]
3.Identify the behavior of Fly High Airlines’ total cost behavior based on your answer to part B. Explain your choice.
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