MidCoast Airlines provides charter airplane services. In October, when the company is operating at 60% of its capacity, it receives a bid from the local college. The college is organizing a trip for a student group. The college budgeted only $40,000 for round-trip airfare. MidCoast Airlines normally charges between $60,000 and $70,000 for such service. MidCoast determines its total cost for the round-trip flight to Washington to be $56,000, which consists of the following. Variable cost $ 31,000 Fixed cost 25,000 Total cost $ 56,000 Although the manager at MidCoast supports the college’s educational efforts, she is struggling to justify accepting only $40,000. (a) What is the contribution margin from accepting the offer? (b) Should the airline accept the $40,000 offer from the college?

MidCoast Airlines provides charter airplane services. In October, when the company is operating at 60% of its capacity, it receives a bid from the local college. The college is organizing a trip for a student group. The college budgeted only $40,000 for round-trip airfare. MidCoast Airlines normally charges between $60,000 and $70,000 for such service. MidCoast determines its total cost for the round-trip flight to Washington to be $56,000, which consists of the following. Variable cost $ 31,000 Fixed cost 25,000 Total cost $ 56,000 Although the manager at MidCoast supports the college’s educational efforts, she is struggling to justify accepting only $40,000. (a) What is the contribution margin from accepting the offer? (b) Should the airline accept the $40,000 offer from the college?

CONCEPTS IN FED.TAX.,2020-W/ACCESS

20th Edition

ISBN:9780357110362

Author:Murphy

Publisher:Murphy

Chapter15: Choice Of Business Entity—other Considerations

Section: Chapter Questions

Problem 71P

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