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MidCoast Airlines provides charter airplane services. In October of this year, the company is operating...

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Accounting

MidCoast Airlines provides charter airplane services. In October of this year, the company is operating at 60% of its capacity when it receives a bid from the local community college. The college is organizing a Washington, D.C., trip for its international student group. The college budgeted only $50,000 for round-trip airfare. MidCoast Airlines normally charges between $70,000 and $80,000 for such service. MidCoast determines its cost for the round-trip flight to Washington to be $66,000, which consists of the following.

Variable cost $ 27,000
Fixed cost (allocated) 39,000
Total cost $ 66,000

Although the manager at MidCoast supports the colleges educational efforts, she cannot justify accepting the $50,000 bid for the trip given the projected $16,000 loss. Still, she decides to consult with you, an independent financial consultant. Do you believe the airline should accept the bid from the college? What is the contribution margin from accepting the offer?

Should the Airline accept the bid from the college?

Contribution Margin:

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