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Second City Airlines owns one aircraft capacity 120 passengers and can operate 20 scheduled one way flights between NewYork City and Pittsburgh each week It charges a fixed one way fare of

Second City Airlines owns one aircraft (capacity =120 passengers) and can operate 20 scheduled one-way flights between NewYork City and Pittsburgh each week. It charges a fixed one-way fare of $150 per passenger. Fuel and other flight-related costs are $5,000 per one-way flight. On-flight meal costs are $11 per passenger. Sales commissions averaging 6% of fare are paid to travel agents. Flying crew, ground crew, advertising and other administrative costs amount to $210,000 each week.

A.) Assuming that Second City has decided to operate 20 one-way flights, how many passengers must each of the one-way flights have on average to make a total after-tax profit of $20,000 per week? Assume that the income tax rate is 35%.

Solution to question A:

Costs that vary with number of passengers:

Meals and refreshments = $11

X = number of passengers needed to break even each week

Total revenue per week – costs per passenger per week – costs per flight per week – fixed costs per week = profit per week

($120 x X x 20) – ($11 x X x 20) – ( $5,000 x 20 ) – $210,000 = $0

$2,180X = $310,000

X = $310,000 ÷ $2,180 = 142.20 (i.e., 142 passengers per flight)

B.) REQUIRED (pls. provide answer for parf B only)

Assuming that Second City has not yet decided on the number of flights and that all the scheduled flights will be 90% full, how many one-way flights must they operate on this route to make the same profit as in A?

 

Aug 22 2020 View more View Less

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