Financial & Managerial Accounting
14th Edition
ISBN: 9781337119207
Author: Carl Warren, James M. Reeve, Jonathan Duchac
Publisher: Cengage Learning
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Textbook Question
Chapter 18, Problem 18.6BPR
Product costing and decision analysis for a service company
Blue Star Airline provides passenger airline service, using small jets. The airline connects four major cities: Charlotte, Pittsburgh, Detroit, and San Francisco. The company expects to fly 170,000 miles during a month. The following costs are budgeted for a month:
| Fuel | $2,120,000 |
| Ground personnel | 788,500 |
| Crew salaries | 850,000 |
| 430,000 | |
| Total costs | $4,188,500 |
Blue Star management wishes to assign these costs to individual flights in order to gauge the profitability of its service offerings. The following activity bases were identified with the budgeted costs:
| Airline Cost | Activity Base |
| Fuel, crew, and depreciation costs | Number of miles flown |
| Ground personnel | Number of arrivals and departures at an airport |
The size of the company’s ground operation in each city is determined by the size of the workforce. The following data are available from corporate records for each terminal operation:
| Terminal City | Ground Personnel Cost | Number of Arrivals/Departures |
| Charlotte | $256,000 | 320 |
| Pittsburgh | 97,500 | 130 |
| Detroit | 129,000 | 150 |
| San Francisco | 306,000 | 340 |
| Total | $788,500 | 940 |
Three recent representative flights have been selected for the profitability study. Their characteristics are as follows:
| Description | Miles Flown | Number of Passengers | Ticket Price per Passenger | |
| Flight 101 | Charlotte to San Francisco | 2,000 | 80 | $695,00 |
| Flight 102 | Detroit to Charlotte | 800 | 50 | 441,50 |
| Flight 103 | Charlotte to Pittsburgh | 400 | 20 | 382,00 |
Instructions
1. Determine the fuel, crew, and depreciation cost per mile flown.
2. Determine the cost per arrival or departure by terminal city.
3. Use the information in (1) and (2) to construct a profitability report for the three flights. Each flight has a single arrival and departure to its origin and destination city pairs.
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Alyeski Tours operates day tours of coastal glaciers in Alaska on its tour boat the Blue Glacier, Management has identified two cost drivers-the number of cruises and the number of passengers-that it uses in its budgeting and performance reports. The company publishes a schedule of day cruises that it may supplement with special salings I if there is sufficient demand. Up to 82 passengers can be accommodated on the tour boat. Data concerning the company's cost formulas appear below: Fixed Cost per Month Cost per Cruise Cost per Passenger Vessel operating costs $ 6, 600 S 473.00 $ 3.00 Advertising S 3,000 Administrative costs $ 6,000 S 37.00 $ 1.50 Insurance S-3,300 For example, vessel operating costs should be $6, 600 per month plus $473.00 per cruise plus $3.00 per passenger. The company's sales should average $32.00 per passenger. In July, the company provided 50 cruises for a total of 3, 050 passengers. Required: Prepare the company's flexible budget for July.
Alyeski Tours operates day tours of coastal glaciers in Alaska on its tour boat the Blue Glacier. Management has identified two cost
drivers-the number of cruises and the number of passengers-that it uses in its budgeting and performance reports. The company
publishes a schedule of day cruises that it may supplement with special sailings if there is sufficient demand. Up to 86 passengers can
be accommodated on the tour boat. Data concerning the company's cost formulas appear below:
Fixed Cost per Month
$ 6,400
$ 2,500
$ 5,600
$ 3,300
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$ 480.00
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$ 3.30
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Advertising
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$ 38.00
$ 1.50
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For example, vessel operating costs should be $6,400 per month plus $480.00 per cruise plus $3.30 per passenger. The company's
sales should average $30.00 per passenger. In July, the company provided 58 cruises for a total of 3,200 passengers.
Required:
Prepare the company's flexible budget for July.
Alyeski Tours
Flexible…
Alyeski Tours operates day tours of coastal glaciers in Alaska on its tour boat the Blue Glacier. Management has identified two cost
drivers-the number of cruises and the number of passengers-that it uses in its budgeting and performance reports. The company
publishes a schedule of day cruises that it may supplement with special sailings if there is sufficient demand. Up to 85 passengers can
be accommodated on the tour boat. Data concerning the company's cost formulas appear below:
Fixed Cost per Month
$ 6,100
$ 2,400
$ 5,300
$ 3,900
Cost per Cruise
$ 472.00
Cost per Passenger
$ 3.30
Vessel operating costs
Advertising
Administrative costs
$
38.00
$ 1.50
Insurance
For example, vessel operating costs should be $6,100 per month plus $472.00 per cruise plus $3.30 per passenger. The company's
sales should average $30.00 per passenger. In July, the company provided 60 cruises for a total of 3,050 passengers.
Required:
Prepare the company's flexible budget for July.
Alyeski Tours
Flexible…
Chapter 18 Solutions
Financial & Managerial Accounting
Ch. 18 - Why would management be concerned about the...Ch. 18 - Why would a manufacturing company with multiple...Ch. 18 - How do the multiple production department and the...Ch. 18 - Under what two conditions would the multiple...Ch. 18 - Prob. 5DQCh. 18 - Prob. 6DQCh. 18 - Prob. 7DQCh. 18 - Under what circumstances might the activity-based...Ch. 18 - Prob. 9DQCh. 18 - Prob. 10DQ
Ch. 18 - Single plantwide factory overhead rate The total...Ch. 18 - Multiple production department factory overhead...Ch. 18 - Activity-based costing: factory overhead costs The...Ch. 18 - Activity-based costing: selling and administrative...Ch. 18 - Activity-based costing for a service business...Ch. 18 - Single plantwide factory overhead rate Nixon...Ch. 18 - Single plantwide factory overhead rate Mozart...Ch. 18 - Single plantwide factory overhead rate Sally...Ch. 18 - Product costs and product profitability reports,...Ch. 18 - Multiple production department factory overhead...Ch. 18 - Single plantwide and multiple production...Ch. 18 - Single plantwide and multiple production...Ch. 18 - Identifying activity bases in an activity-based...Ch. 18 - Product costs using activity rates Nozama.com Inc....Ch. 18 - Product costs using activity rates Atlas...Ch. 18 - Activity rates and product costs using...Ch. 18 - Activity cost pools, activity rates, and product...Ch. 18 - Activity-based costing and product cost distortion...Ch. 18 - Multiple production department factory overhead...Ch. 18 - Activity-based costing and product cost distortion...Ch. 18 - Single plantwide rate and activity-based costing...Ch. 18 - Evaluating selling and administrative cost...Ch. 18 - Construct and interpret a product profitability...Ch. 18 - Activity-based costing and customer profitability...Ch. 18 - Activity-based costing for a service company...Ch. 18 - Activity-based costing for a service company...Ch. 18 - Single plantwide factory overhead rate Orange...Ch. 18 - Multiple production department factory overhead...Ch. 18 - Activity-based and department rate product costing...Ch. 18 - Activity-based product costing Mello Manufacturing...Ch. 18 - Allocating selling and administrative expenses...Ch. 18 - Product costing and decision analysis for a...Ch. 18 - Single plantwide factory overhead rate Spoiled Cow...Ch. 18 - Multiple production department factory overhead...Ch. 18 - Activity-based department rate product costing and...Ch. 18 - Activity-based product costing Sweet Sugar Company...Ch. 18 - Allocating selling and administrative expenses...Ch. 18 - Product costing and decision analysis for a...Ch. 18 - Activity-based product cost improvement Gourmet...Ch. 18 - Prob. 2ADMCh. 18 - Production run size and activity improvement...Ch. 18 - Prob. 4ADMCh. 18 - Ethics in Action The controller of Tri Con Global...Ch. 18 - Communication The controller of New Wave Sounds...
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