Transpacific Airlines (TPA) budgeted 80 million passenger-miles, or 5 percent of the total market for the year
Question:
Transpacific Airlines (TPA) budgeted 80 million passenger-miles, or 5 percent of the total market for the year just completed at a contribution margin of 40 cents per mile. The budgeted variable cost is 12 cents per mile. The operating data for the year show that TPA flew 69.12 million passenger-miles with an average price of 48 cents per passenger-mile. The terrorist activity in the early part of the year in several countries in the region decreased the total miles flown by all airlines for the year by 10 percent. There is no flexible-budget variance for all costs.
Budgeted sales | 80,000,000 | miles |
Actual Sales | 69,120,000 | miles |
Budgeted selling price | $ 0.52 | =.40+.12 per mile |
Actual selling price | $ 0.48 | per mile |
Budgeted contribution | $ 0.40 | per mile |
Budgeted market share | 5% | |
Decrease in total market for all airlines | 10% |
Required
Assess the effects of the price, sales volume, market size, and market share on the firm’s operating results for the year.
Contribution margin is an important element of cost volume profit analysis that managers carry out to assess the maximum number of units that are required to be at the breakeven point. Contribution margin is the profit before fixed cost and taxes...
Step by Step Answer:
Cost management a strategic approach
ISBN: 978-0073526942
5th edition
Authors: Edward J. Blocher, David E. Stout, Gary Cokins