Question

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 Depreciation 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 monthly 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

Required: 1. Determine the fuel, crew, and depreciation cost per mile flown. per mile 2. Determine the cost per arrival or departure by terminal city. Charlotte से Pittsburgh Detroit San Francisco से 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. Blue Star Airline Flight Profitability Report For Three Representative Flights Flight 101 Flight 102 Flight 103 Passenger revenue Fuel, crew, and depreciation costs $ Ground personnel Total costs Flight operating income (loss)

Answer 1

Part 1

Fuel	$        2,120,000
Crew salaries	$            850,000
Depreciation	$            430,000
Total fuel, crew, and depreciation Cost	$        3,400,000
Divided by: miles fly	170,000
Total fuel, crew, and depreciation cost per mile flown	$                       20

Part 2

Terminal city	Ground personnel cost	Divided by: number of arrival or departure	Ground personnel cost per arrival or departure
Charlotte	$            256,000	320	$           800
Pittsburgh	$              97,500	130	$           750
Detroit	$            129,000	150	$           860
San Francisco	$            306,000	340	$           900

Part 3

Flight	Flight 101	Flight 102	Flight 103
Ticket per passenger	$              695.00	$        441.50	$     382.00
Multiply: number of passengers	80	50	20
Passenger revenue	$              55,600	$        22,075	$        7,640
Flight	Flight 101	Flight 102	Flight 103
Total fuel, crew, and depreciation cost per mile flown	$                 20.00	$          20.00	$        20.00
Multiply: miles flown	2,000	800	400
Fuel, crew, and depreciation cost	$              40,000	$        16,000	$        8,000
Flight	Description		Ground personnel cost
Flight 101	Charlotte to San Francisco (800+900)		$        1,700
Flight 102	Detroit to Charlotte (860+800)		$        1,660
Flight 103	Charlotte to Pittsburgh (800+750)		$        1,550

Blue Star Airlines
Flight profitability report
	Flight 101	Flight 102	Flight 103
Passenger revenue	$              55,600	$        22,075	$        7,640
Fuel, crew, and depreciation cost	$              40,000	$        16,000	$        8,000
Ground personnel cost	$                 1,700	$          1,660	$        1,550
Total cost	$              41,700	$        17,660	$        9,550
Flight operating income (loss)	$              13,900	$          4,415	$     (1,910)