Question: Blue Star Airline provides passenger airline service using small jets

Blue Star Airline provides passenger airline service, using small jets. The airline connects four major cities: Charlotte, Pittsburgh, Detroit, and San Francisco. The company expects to fly 170,000 miles during a month. The following costs are budgeted for a month:
Fuel ............... $ 2,120,000
Ground personnel .......... 788,500
Crew salaries ........... 850,000
Depreciation ............ 430,000
Total costs ............. $4,188,500
Blue Star 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 workforce. 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:

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. Each flight has a single arrival and departure to its origin and destination city pairs.
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.
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  • CreatedJune 27, 2014
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