Question 1. AirHK is a small local company which operates flights between Hong Kong and Xiamen. These flight are scheduled for 6 flights per week ( 3 outward and 3 inward) which operate for 52 weeks annually, a total of 312 flights. All flights are booked through a travel agent who charges 5% commission on each fare. Details of their plane, the flights and costs for 2022 are as follows: The costs of check-in and landing slot are a semi-variable or mixed cost and this needs to be analysed separately. Details of an annual analysis of past costs and number of passengers of this mixed cost is: The landing slot fixed cost applies to 312 flights per annum Management at AirHK are constantly evaluating new business opportunities and two recent opportunities concern fare changes and the operation of charter flights. Fare change: AirHK believe plane occupancy is a key factor in their profitability and hence they are evaluating reducing the fare to $750 which is expected to increase the average number of passengers to 240 per flight Charter flight: AirHK have recently been approached by a tour operator (TourHK) to charter the plane for the exclusive use of TourHK on selected days throughout the year, four flights in each month, 48 flights per year. This inevitably reduces the number of flights AirHK can make on their usual schedule to Xiamen to 264 flights. TourHK would pay $140,000 for each one- 601502 Question 1 continued way charter flight, in addition they would bear the cost of fuel, food and beverage, and checkin, however, AirHK would still bear the costs of the plane lease, landing slot and flight crew. Required: (a) Separate the variable and fixed component of the mixed cost and then prepare a profit statement for the management of AirHK which identifies the revenue, contribution and net profit (for each flight and for the whole year) for (i) the original scheduled flights and (ii) if the proposed fare change went ahead. Briefly comment on the results. (30marks) (b) Advise AirHK on the approach by TourHK to charter the plane for 48 flights, including a projection of the total profit for AirHK if this is accepted. Interpret this information for the management and add any qualitative factors which may need to be taken into consideration by AirHK