Global Air is considering a new flight between Atlanta and Los Angeles. The average fare per seat for the flight is $780. The costs associated with the flight are as follows: Fixed costs for the flight: Crew salaries................................................ $ 4,860 Operating costs........................................... 50,000 Aircraft depreciation.................................. 25,000 Total......................................................... $ 79,860 Variable costs per passenger: Passenger check-in..................................... $ 20 Operating costs........................................... 100 Total......................................................... $ 120 The airline estimates that the flight will sell 170 seats. a. Determine the break-even number of passengers per flight. b. Based on your answer in (a), should the airline add this flight to its schedule? c. How much profit should each flight produce? d. What additional issues might the airline consider in this decision?
Global Air is considering a new flight between Atlanta and Los Angeles. The average fare per seat for the flight is $780. The costs associated with the flight are as follows: Fixed costs for the flight: Crew salaries................................................ $ 4,860 Operating costs........................................... 50,000 Aircraft depreciation.................................. 25,000 Total......................................................... $ 79,860 Variable costs per passenger: Passenger check-in..................................... $ 20 Operating costs........................................... 100 Total......................................................... $ 120 The airline estimates that the flight will sell 170 seats. a. Determine the break-even number of passengers per flight. b. Based on your answer in (a), should the airline add this flight to its schedule? c. How much profit should each flight produce? d. What additional issues might the airline consider in this decision?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Global Air is considering a new flight between Atlanta and Los Angeles. The average fare per seat for the flight is $780. The costs associated with the flight are as follows:
| Fixed costs for the flight: | |
| Crew salaries................................................ | $ 4,860 |
| Operating costs........................................... | 50,000 |
| Aircraft depreciation.................................. | 25,000 |
| Total......................................................... | $ 79,860 |
| Variable costs per passenger: | |
| Passenger check-in..................................... | $ 20 |
| Operating costs........................................... | 100 |
| Total......................................................... | $ 120 |
The airline estimates that the flight will sell 170 seats.
a. Determine the break-even number of passengers per flight.
b. Based on your answer in (a), should the airline add this flight to its schedule?
c. How much profit should each flight produce?
d. What additional issues might the airline consider in this decision?
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