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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

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:

1

Fuel

$2,120,000.00

2

Ground personnel

788,500.00

3

Crew salaries

850,000.00

4

Depreciation

430,000.00

5

Total costs

$4,188,500.00

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 companys 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:

Terminal City Ground Personnel Cost Number of 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:

Miles Number of Ticket Price
Description 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
Required:
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.

Amount Descriptions

Amount Descriptions
Flight income from operations
Fuel, crew, and depreciation costs
Ground personnel
Other income (expense)
Passenger revenue
Single plantwide factory overhead rate

Starting Questions

1. Determine the fuel, crew, and depreciation cost per mile flown.

per mile

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

Terminal City Arrival/Departure Rate per City
Charlotte
Pittsburgh
Detroit
San Francisco

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.

Blue Star Airline

Flight Profitability Report

For Three Representative Flights

1

Flight 101

Flight 102

Flight 103

2

3

4

5

6

Final Question

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.

Flight Approximate Break-Even
101 passengers
102 passengers
103 passengers

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