Product costing and decision analysis for a service company OBJ. 6 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:

Ground Personnel Number of Terminal City Cost 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:

Number of Ticket Price Description Miles Flown Passengers 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 Instructions 1. Determine the fuel, crew, and depreciation cost per mile flown.

2. Determine the cost per arrival or departure by terminal city.

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.

4. Evaluate flight profitability by determining the break-even number of passengers required for each flight assuming all the costs of a flight are fixed. Round to the nearest whole number.