1) Scenic Flights provides 2 hour sightseeing flights over the Eastern Sea Board along the Greet Ocean Road near Lorne Victoria. The average flight has 20 passengers on board. Each passenger pays $300 for a 2 hour scenic flight. The business averages 90 flights each year based on current demand over the weekend - Saturday and / or Sunday dependent on demand. Each flight requires two pilots who are each paid $500 per flight and two flight attendants who receive $200 each per flight. Pilots and flight attendants are employed on a casual basis only receiving payment when flights operate. Other variable costs include: inflight passenger refreshments costing $30 per passenger and fuel which costs $800 per flight. Total annual fixed costs are $150,000.

(a)Calculate income and variable costs and contribution margin of each scenic flight.

(b)Calculate the number of scenic flights needed to break even.

(c)Scenic Flights would like to increase current profits by 40 percent. Calculate the number of additional flights required to meet this financial goal.

(d)Discuss whether this increased profit target is realistic under current conditions and possible assumptions and limitations of the "cost / volume / profit model" at such higher volume levels.

(e)Scenic Flights is considering replacing the existing 2 hour flight with a more luxurious 1 hour flight costing $250 per passenger. Under the new proposal it is estimated that demand will increase to 190 scenic flights per year with each flight limited to 15 passengers. Flights will be conducted in the morning and afternoon over the week ends. Other costs to change from the original offer include: inflight refreshments up from $30 to $50 per passenger and the annual fixed costs to increase from $150,000 to $200,000. The two pilots and 2 flight attendants will each be paid $250 and $100 respectively reflecting the shorter duration of the flight compared to the original offer. Fuel costs also reduce to $450 per flight

(i)Calculate the number of flights under this new proposal needed to break even annually.

(ii)Given Scenic Flights wants to maximize total yearly profit discuss, justifying your answer ,whether they should continue with the existing 2 hour flight offer or replace it with the luxury 1 hour flight.(Please note the same aircraft is used under either proposal. The aircraft remains on the ground having no alternate use on weekends. Show all workings/ calculations as part of your answer)

(f)Identify 2 further financial or non-financial considerations that may be relevant in contemplating to replace the existing offer with the new 1 hour luxury scenic flight offer