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 $ (enter your response as a whole number).

Answer 1

Solution : Contribution refers to the excess of Selling Price over Variable Cost .

And , Total Contribution = Total Sales (No. of Seats Booked * Selling price per seat) - Total Variable Cost(No. of Seats Booked *Variable Cost per seat)

According to the information given in the question , under Single - Price Approach ,

Number of Seats booked = Average number of passengers on a flight = 81

Revenue or Selling price per seat = $142

Variable Cost per seat = $27

Therefore, Total Contribution = Total Sales (No. of Seats Booked * Selling price per seat) - Total Variable Cost(No. of Seats Booked *Variable Cost per seat)

                                           = [81*$142] - [81*$27] = $9315

So, under single-price approach , total contribution = $9315