As an analyst at Delta Airlines, you are asked to help the operations staff. Operations has...
As an analyst at Delta Airlines, you are asked to help the operations staff. Operations has identified a new method of loading baggage that is expected to result in a 35 percent reduction in labor time but no changes in any other costs. The current labor cost to load bags is $12 per bag. Other costs are $11 per bag. Required: a-1. What differential costs should the operations staff consider for the decision to use the new method next year? a-2. What would be the cost savings per bag using it? b. How would management use the information in requirement (a) and any other appropriate information to proceed with the contemplated use of the new baggage loading method?
Homework Answers
Answer to part a-1
Labour cost:
| Old method | New method | |
| Next year | $12 | =(1-0.35)*$12=7.8 |
Differential cost would be =$12-$7.8=$4.2
Answer to part b
The management would use the information to know whether they should be using the new method or not.
Other appropriate information would be about lost bags, delays indelivering bags to baggage claim etc.
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