Question

Southeastern Airlines's daily flight from Atlanta to Charlotte uses a Boeing 737, with all-coach seating for 120 people. In the past, the airline has priced every seat at $142 for the one-way flight. An average of 81 passengers are on each flight. The variable cost of a filled seat is $27. Aysajan Eziz, the new operations manager, has decided to try a yield revenue approach, with seats priced at $79 for early bookings and at $186 for bookings within 1 week of the flight. He estimates that the airline will sell 63 seats at the lower price and 34 at the higher price. Variable cost will not change. Total $ contribution in the single price approach is $ 9315 (enter your response as a whole number). Total $ contribution in the two price points approach is $ (enter your response as a whole number).

Answer 1

Solution : Contribution can be calculated using the following formula :

Total contribution = Total Sales - Total Variable cost , where

Total Sales = Number of Seats booked * Revenue per Seat

Total variable cost = Number of Seats booked * Variable cost per Seat

1. Single- Price Approach

Revenue per Seat = $142

Variable cost per Seat = $27

Number of Seats booked = 81

So, Total contribution = Total Sales - Total Variable cost = 81*142 - 81*27 = 81*115= $9315

1. Two Price Approach

Revenue per Seat for Early Booking (lower price) = $79

Revenue per Seat for late Booking (higher price) = $186

Variable cost per Seat = $27

Number of Seats booked (lower price) = 63

Number of Seats booked (higher price) =34

Total number of seats booked = 63+34 = 97

So, Total contribution = Total Sales(lower + higher) - Total Variable cost = [63*$79+34*$186] - [97*$27] = [4977+6324]- 2619 = $8682