Financial & Managerial Accounting
Financial & Managerial Accounting
14th Edition
ISBN: 9781337119207
Author: Carl Warren, James M. Reeve, Jonathan Duchac
Publisher: Cengage Learning
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Chapter 18, Problem 18.6BPR

Product costing and decision analysis for a service company

Blue Star Airline provides passenger airline service, using small jets. The airline connects four major cities: Charlotte, Pittsburgh, Detroit, and San Francisco. The company expects to fly 170,000 miles during a month. The following costs are budgeted for a month:

Fuel $2,120,000
Ground personnel 788,500
Crew salaries 850,000
Depreciation 430,000
Total costs $4,188,500

Blue Star management wishes to assign these costs to individual flights in order to gauge the profitability of its service offerings. The following activity bases were identified with the budgeted costs:

Airline Cost Activity Base
Fuel, crew, and depreciation costs Number of miles flown
Ground personnel Number of arrivals and departures at an airport

The size of the company’s ground operation in each city is determined by the size of the workforce. The following data are available from corporate records for each terminal operation:

Terminal City Ground Personnel Cost Number of Arrivals/Departures
Charlotte $256,000 320
Pittsburgh 97,500 130
Detroit 129,000 150
San Francisco 306,000 340
Total $788,500 940

Three  recent representative flights have been selected for the profitability study. Their characteristics are as follows:

  Description Miles Flown Number of Passengers Ticket Price per Passenger
Flight 101 Charlotte to San Francisco 2,000 80 $695,00
Flight 102 Detroit to Charlotte 800 50 441,50
Flight 103 Charlotte to Pittsburgh 400 20 382,00

Instructions

1. Determine the fuel, crew, and depreciation cost per mile flown.

2. Determine the cost per arrival or departure by terminal city.

3. Use the information in (1) and (2) to construct a profitability report for the three flights. Each flight has a single arrival and departure to its origin and destination city pairs.

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Chapter 18 Solutions

Financial & Managerial Accounting

Ch. 18 - Single plantwide factory overhead rate The total...Ch. 18 - Multiple production department factory overhead...Ch. 18 - Activity-based costing: factory overhead costs The...Ch. 18 - Activity-based costing: selling and administrative...Ch. 18 - Activity-based costing for a service business...Ch. 18 - Single plantwide factory overhead rate Nixon...Ch. 18 - Single plantwide factory overhead rate Mozart...Ch. 18 - Single plantwide factory overhead rate Sally...Ch. 18 - Product costs and product profitability reports,...Ch. 18 - Multiple production department factory overhead...Ch. 18 - Single plantwide and multiple production...Ch. 18 - Single plantwide and multiple production...Ch. 18 - Identifying activity bases in an activity-based...Ch. 18 - Product costs using activity rates Nozama.com Inc....Ch. 18 - Product costs using activity rates Atlas...Ch. 18 - Activity rates and product costs using...Ch. 18 - Activity cost pools, activity rates, and product...Ch. 18 - Activity-based costing and product cost distortion...Ch. 18 - Multiple production department factory overhead...Ch. 18 - Activity-based costing and product cost distortion...Ch. 18 - Single plantwide rate and activity-based costing...Ch. 18 - Evaluating selling and administrative cost...Ch. 18 - Construct and interpret a product profitability...Ch. 18 - Activity-based costing and customer profitability...Ch. 18 - Activity-based costing for a service company...Ch. 18 - Activity-based costing for a service company...Ch. 18 - Single plantwide factory overhead rate Orange...Ch. 18 - Multiple production department factory overhead...Ch. 18 - Activity-based and department rate product costing...Ch. 18 - Activity-based product costing Mello Manufacturing...Ch. 18 - Allocating selling and administrative expenses...Ch. 18 - Product costing and decision analysis for a...Ch. 18 - Single plantwide factory overhead rate Spoiled Cow...Ch. 18 - Multiple production department factory overhead...Ch. 18 - Activity-based department rate product costing and...Ch. 18 - Activity-based product costing Sweet Sugar Company...Ch. 18 - Allocating selling and administrative expenses...Ch. 18 - Product costing and decision analysis for a...Ch. 18 - Activity-based product cost improvement Gourmet...Ch. 18 - Prob. 2ADMCh. 18 - Production run size and activity improvement...Ch. 18 - Prob. 4ADMCh. 18 - Ethics in Action The controller of Tri Con Global...Ch. 18 - Communication The controller of New Wave Sounds...
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