1. What are the variable costs for the decision to send one more person aboard a charter...

Question:

1. What are the variable costs for the decision to send one more person aboard a charter flight that is already 80 percent booked?
2. In making an entry/exit decision, if competitive pressure is projected to force the price down to $300, what is the break-even unit sales volume this company should have projected as part of its business plan before entering this market and should reconsider each time it considers leaving (exiting) this business altogether?
3. Identify the indirect fixed costs of the charter service for a particular one of many such charters this month.
4. If one were trying to decide whether to operate (fly) or not fly an unscheduled round-trip charter flight, what would be the total direct fixed costs and variable costs of the flight?
5. What are the total contributions of the charter flight with 90 seats at $250 per seat?
6. What are the net income losses for this two-day period if the airline refuses the 90-seat charter, stays in business, but temporarily shuts down? What are the net income losses if it decides to operate and fly the charter that has been proposed?
7. What is the segment-level contribution of a separate group that is willing to join the 90-seat-at-$250-per-seat charter on the same plane and same departure, but only wishes to pay $50 per seat for 10 seats?
8. Should you accept their offer? What problems do you anticipate if both charter groups are placed on the 737?

Firm-specific demand in the scheduled airline industry is segmented by customer class and is highly uncertain so that an order may not lead to realized revenue and a unit sale. Airlines respond to this dynamic, highly competitive environment by tracking reservations at preannounced fares and reassigning capacity to the various market segments (“buckets”) as business travelers, vacationers, and convention groups book the flights above or below expected levels several days and even weeks before scheduled departure. This systems management process combining marketing, operations, and finance is referred to as revenue management or yield management.