Question
Michael Bordellet is the owner/pilot of Stellar Air Service. The company flies a daily round trip from Seattles Lake Union to a resort in Canada.
Michael Bordellet is the owner/pilot of Stellar Air Service. The company flies a daily round trip from Seattles Lake Union to a resort in Canada. In 2016, the company reported an annual income before taxes of $167,403, although that included a deduction of $65,000, reflecting Michaels salary:
Revenue ($330 1,872 passengers) | $617,760 | |||||
Less costs: | ||||||
Pilot (owners salary) | $65,000 | |||||
Fuel ( 38,331 gallons $3.98) | 152,557 | |||||
Maintenance (variable) | 137,500 | |||||
Depreciation of plane | 24,100 | |||||
Depreciation of office equipment | 2,700 | |||||
Rent expense | 41,000 | |||||
Insurance | 20,800 | |||||
Miscellaneous (fixed) | 6,700 | 450,357 | ||||
Income before taxes | $167,403 |
Revenue of $617,760 reflects 6 round trips per week for 52 weeks with an average of 6 passengers paying $330 each per round trip (6 52 6 $330 = $617,760). The flight to the resort is 430 miles one way. With 312 round trips (6 per week 52 weeks), that amounts to 268,320 miles. The plane averages 7 miles per gallon
How many round trips is Michael currently flying, and how many round trips are needed to break even?
How many round trips are needed so that Michael can draw a salary of $118,000 and still not show a loss?
What is the average before-tax profit of a round trip flight in 2016?
What is the incremental profit associated with adding a round-trip flight?
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