Pacific Airways provides air travel services between Los Angeles and Seattle. Cost information per flight is as

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Pacific Airways provides air travel services between Los Angeles and Seattle. Cost information per flight is as follows: 

Fixed Costs per Flight $ 9,500 Variable Costs per Passenger Plane depreciation Crew salaries Fuel Ground salaries Airpor


Each flight has a capacity of 150 seats, with an average of 125 seats sold per flight at an average ticket price of $180. Assume Pacific Airways is considering a new service that would provide tickets at half price. Passengers would need to fly standby to receive the discount, but would be provided a flight for a given day of travel. An analysis revealed that an average of 8 existing passengers would use the new discounted tickets for travel. In addition, 15 new passengers would be attracted to the offer. 

a. Determine the contribution margin per passenger for the full-priced ticket.

b. Determine the break-even number of seats sold per flight.

c. Determine the contribution margin per passenger for discounted tickets.

d. Should Pacific Airways offer the discounted ticket plan? Answer the question by computing the incremental contribution margin per flight for the plan.

Contribution Margin
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...
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Related Book For  answer-question

Forensic And Investigative Accounting

ISBN: 9780808056300

10th Edition

Authors: G. Stevenson Smith D. Larry Crumbley, Edmund D. Fenton

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