True Blue Airline provides passenger airline service, using small jets. The airline connects four major cities: Atlanta, Cincinnati, Chicago, and Los Angeles. The company expects to fly 125,000 miles during a month. The following costs are budgeted for a month:

Fuel .........$ 950,000

Ground personnel .....714,300

Crew salaries ......628,000

Depreciation .......172,000

Total costs .....$2,464,300

True Blue 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 company's ground operation in each city is determined by the size of the work force. The following monthly data are available from corporate records for each terminal operation:

Three recent representative flights have been selected for the profitability study. Their characteristics are as follows:

Instructions
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.
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 wholenumber.

Transcribed Image Text:

Number of Arrivals/Departures 320 130 150 290 890 Ground Personnel Cost Terminal City $248,000 Atlanta Cincinnati Chicago Los Angeles 91,000 123,000 252,300 $714,300 Total Number of Passengers Ticket Price per Passenger $1,375 590 Description Miles Flown Flight 101 Flight 102 Flight 103 Atlanta to LA Chicago to Atlanta Atlanta to Cincinnati 1,850 600 350 23 29 14 425