Question
WSM Corporation is considering offering an air shuttle service between Sao Paulo and Rio de Janeiro. It plans to offer four flights every day (excluding
WSM Corporation is considering offering an air shuttle service between Sao Paulo and Rio de Janeiro. It plans to offer four flights every day (excluding certain holidays) for a total of 1,400 flights per year ( = 350 days 4 flights per day). WSM has hired a consultant to determine activity-based costs for this operation. The consultants report shows the following : |
Activity | Activity Measure (cost driver) | Unit Cost (cost per unit of activity) | |
Flying and maintaining aircraft | Number of flights | $ | 1,000 per flight |
Serving passengers | Number of passengers | $ | 2 per passenger |
Advertising and marketing | Number of promotions | $ | 45,000 per promotion |
WSM estimates the following annual information. With 9 advertising promotions, it will be able to generate demand for 40 passengers per flight at a fare of $175. The lease of the 60-seat aircraft will cost $3,000,000. Other equipment costs will be $1,500,000. Administrative and other marketing costs will be $850,000.
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