Flightways, a flight training academy, owns several flight simulators. The flight simulators usually have a significant amount of idle time because customers do not want to use them in the middle of the night. However, a competitor contacted the sales manager about a special arrangement to use Flightways’ B7X7 Flight Simulator during idle times over the next month. The competitor’s B7X7 simulator experienced a malfunction, and repairs cannot be completed until new parts arrive. The competitor is offering to pay $400 per hour for 250 hours during the next month.

Budget information for this year’s operations of the B7X7 Flight Simulator follows.

Theoretical capacity ........... 8,760 hours

Budgeted capacity ........... 3,400 hours

Costs traced directly:

Simulator supplies cost function .....$1,000 + $4.50 per simulator hour

Electricity at $0.10 per ......... 6,000 kWh + 165 kWh per

Kilowatt hour (kWh) ........... hour of simulator use

Simulator depreciation .......... $1,505,160 per year

Other resource pool cost rates:

Maintenance variable cost rate ....... $70 per maintenance hour

Facilities fixed cost rate ........... $15 per square foot

Usage of resources from other cost pools:

Facility resources: ............ 2,000 square feet

Maintenance resources: 50 maintenance hours regardless of the volume of simulator use + 0.06 maintenance hours per hour of simulator use

REQUIRED

A. Calculate the ABC estimated allocate rate per hour of simulator use.

B. Based on your ABC calculations in Part B, should the sales manager accept the competitor’s offer? Explain and identify your assumptions about relevant costs.

C. Calculate the RCA fixed and proportional cost rates per hour of simulator use.

D. Based on your RCA calculations in Part B, should the sales manager accept the competitor’s offer? Explain and identify your assumptions about relevant costs.

E. Which costing method provides better information for making this decision? Explain.

F. Identify several qualitative factors that might affect this decision.

G. Assume it is late during the fiscal year, and actual total hours are estimated to be 3,300 if the competitor’s offer is not accepted. Prepare a capacity analysis under the RCA costing system comparing the following two options. (Hint: Prepare a schedule with a column for each option.)

1. The competitor’s offer is not accepted.

2. The competitor’s offer is accepted.