Product Costing and Decision Analysis for a Service Company

Blue Star Airline provides passenger airline service, usingsmall jets. The airline connects four major cities: Charlotte,Pittsburgh, Detroit, and San Francisco. The company expects to fly170,000 miles during a month. The following costs are budgeted fora 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 individualflights in order to gauge the profitability of its serviceofferings. The following activity bases were identified with thebudgeted 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 isdetermined by the size of the workforce. The following monthly dataare available from corporate records for each terminal operation:Show work notes

TerminalCity			GroundPersonnel Cost				Number ofArrivals/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 theprofitability study. Their characteristics are asfollows:

	Description	MilesFlown		Number ofPassengers		Ticket Priceper 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

Required:

1. Determine the fuel, crew, and depreciationcost per mile flown.
$ per mile

2. Determine the cost per arrival or departureby terminal city.

Charlotte	$
Pittsburgh	$
Detroit	$
San Francisco	$

3. Use the information in (1) and (2) toconstruct a profitability report for the three flights. Each flighthas a single arrival and departure to its origin and destinationcity pairs.

Blue Star Airline
Flight Profitability Report
For Three Representative Flights
	Flight 101	Flight 102	Flight 103
Passenger revenue	$	$	$
Fuel, crew, and depreciation costs	$	$	$
Ground personnel
Total costs	$	$	$
Flight operating income (loss)	$	$	$