Assignment 1

Required:
a. Variable costs increase if output (or sales) varies; in this case, costs associated with processing each passenger is an absolute variable cost since there is $7 cost increase for an additional passenger. Other variable costs are the cost of flight clue and fuel costs, since when the number of passenger increase to a capacity that is more than 120 people, one additional flight would have an cost increase of $(600+210)/per hour of flying time.
Fixed costs remain in constant if output (or sales) varies. Here, the leasing costs of aircraft and the ground service costs are both fixed cost, since no matter how many flights you run per week, both leasing costs and ground service costs stay fixed in the short term. b. (1) The total number of tourist flights and business flights offered per week is 120.
Weekday
# of flight/per day one way/roundtrip
# of operating days/per wk
# of flights/per wk business 5
2
5
50
tourist
3
2
5
30
Weekend
# of flight/per day one way/roundtrip
# of operating days/per wk
# of flights/per wk business 0
2
2
0
tourist
10
2
2
40

Total number of business flight/per wk
50
Total number of tourist flight/per wk
70
Total bumber of flights/per wk
120

(2) The average number of passengers that must be carried on each flight to breakeven is around 67 people per flight.
Assuming we need X passenger to breakeven.
Rev (per wk) = $40X*50(# of business flight per wk)+$30X*70((# of tourist flight per wk)=$4100X
Cost (per wk) = ($600+$210)*120*45/60(total flying hrs)+X*120(total flights)*7+(2*2,800,000+1,940,000)/52=$72,900+840X+145,000
*breakeven point=> 4100X = $217,900+840X
=>X=217,900/(4100-840)=66.84

Revenue
# of flight/per wk occupancy rate
# of passenger/total flight rev/per passenger revenue business flight
50
0.5583
3350
40
134,000
tourist flight
70
0.5583
4690
30
140,700
Total revenue

274,700

Cost

Fixed costs

Leasing aircraft

107,692 Ground service

37,308
Variable costs

# of