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# CHARTER AIRLINES OPERATING DECISIONS

1. What are the variable costs for the decision to send one more person aboard a charter flight
that is ready 80 percent booked?
Fuel and landing fees
Unscheduled engine maintenance for 10 flights hours
Flight pay for pilots per round trip flight
Food service
Airport ground crew
Total

\$ 5,200
\$ 1,200
\$ 4,200
\$ 2,400
\$ 450
\$ 13,450

2. In making an entry/exit decision, if competitive pressure is projected to force the price down
to \$ 300, what is the break-even units sales volume this company should have projected as
part of its business plan before entering this market and should reconsider each time it
considers leaving (existing) this business altogether?
100% = 96 seats
80%=96 seats (0.8 x 96 seats)
If the price down to \$300 :
BEP

AVC

Fixed Cost
(Price-AVC)
\$ 23,900
(\$300-\$112.083)

\$23,900
187.917

127 seats

TVC
Q
= \$ 13,450
120 seats

\$112.083

3. Identity the indirect fixed costs of the charter service for a particular one of many such
charters this month
Quarterly airframe maintenance

\$ 1,200

\$ 7,200

\$ 6,600

\$ 7,100

## Base salaries of headquarters personnel

\$ 2,000

Total

\$ 23,900

4. If one were trying to decide whether to operate (fly) or not fly an unscheduled round-trip
charter flight, what would be the total fixed costs and variable costs of the flight?
Total

= TF + TC
= \$13,450 + \$ 23,900
= \$ 37,350

5. Charter contracts are negotiable, and charter carriers receive many contract offers that do not
promise \$300 prices or 80-percent-full planes. Should the airlines accept a charter flight
proposal from a group the offers to guarantee the sale of 90 seats at \$ 250? Why or why not?
Even though the total revenue for 96 seats, the airline should accept the offer since the offer
was guaranteed. Meanwhile, the seats for 80% full plan not promise and there no guaranteed
contact.

6. What are the total contributions of the charter flight with 90 seats at \$250 per seat?
90 seats x \$ 250 = \$ 22,500

7. What are the next income losses for this two-day period if the airline refuses the 90-seat
charter, stays in business, but temporarily shuts down? What are the net income losses if it
decides to operate and fly the charter that has been proposed?
96 seats x \$300 =
90 seats x \$ 250 =

\$28,800 _
\$22,500
\$ 6,300 losses

So, if the airlines the 90-seat charter, they will facing net income losses amounting of RM 6,300

8. What is the segment-level contribution of a separate group that is willing to join the 90-seatat-\$250-per-seat charter on the same plane and same departure, but only wishes to pay \$per
seat for 10 seats?
90 seat x \$250 =
10 seat x \$50 =

\$ 22,500 +
\$500
\$ 23,000

## So, the airlines will only earn \$ 23,000

9. Should you accept their offer? What problems do you anticipate if both charter groups are
placed on the 737?
We advisable to the airline to shouldnt accept. As the different of price is too huge to gain
profit same as 96 seats