Happy Airlines (HA) is considering offering flights between Buffalo, New York. and Seawell, Barbados. The accounting group
Question:
Happy Airlines (HA) is considering offering flights between Buffalo, New York. and Seawell, Barbados. The accounting group at HA has estimated the average fuel and other flight-related costs on each one-way flight will be $45,000. These costs do not vary with respect to the number of passengers. The aircraft capacity is 140 passengers. If the aircraft is full, the estimated revenue for a one-way flight will be $50,000.
Required
(a) What is the load factor (the ratio of seats occupied divided by seats available) required for HA to break even on each one-way flight?
(b) Assume that the annual fixed costs related to operating this route total $1 million. Assuming an average load factor of 95%, how many round-trip flights must be operated each year for HA to cover these fixed costs and earn a pretax profit of $250,000 on this route?
Step by Step Answer:
Management Accounting Information For Decision Making
ISBN: 9781618533517
7th Edition
Authors: Anthony A. Atkinson