“Jet International Airlines (JIA) – a Republican Country based airliner is operating more than 1,400 flights annually with 23 planes of different ranges on domestic and international routes. With a stable stream of cash flows, the company has earned a pre tax profit of Rs. 3,450 million during the last year. Due to cost effective operations, JIA is enjoying competitive position in the industry.
The company’s Strategic Business Development Unit (SBDU) has recently discovered Green Valley - a jewel among the many beautiful valleys in the district of Northern City in the Northern area of Country and features pine forests, crystal clear lakes, cool mountain streams, Deep Cold River, and famous for its trout. SBDU has advised the top management to launch a regular daily flight from Central City to Northern City on day round trip basis. After going through some preliminary study, JIA has decided to operate this route as an independent tour operator. A new business segment in the company has been set up under the name of “Tour Entertainers” (TE).
JIA has inducted staff of 10 qualified persons and has planed to incur Rs. 0.5 million on their training. The company has signed a 3-years lease contract with Planes Lessor Incorporation (PLI) to acquire a new 100-seats “Smart Plane” to operate on this rout. PLI is also responsible for both the periodic and on-demand maintenance of this plane. The company’s SBDU head – Mr. Management Accountant has estimated the following cost figures:
Monthly Fixed Costs (FC):
Lease Rentals of the plane Rs. 14.28 million
Flight Crew expenses 2.25 million
Office Salaries etc. 1.78 million
Office expenses at Northern City 0.89 million
After conducting meetings with various divisions, the SBDU has analyzed the following costs per person on a day round trip on this tour flight and the Management Accountant has verified these figures. They are:
Passenger boarding cost Rs. 8,000
Fuels and ready-to-take-off expenses 1,500
Meals and other services 350
Other value added (net, phone, movies etc) 150
While feeling calm upon the feedback of this new venture’s advertising campaign, the central management of JIA has approved to launch introductory price of Rs. 18,000 per day round trip ticket for each passenger.”
Required:
Keeping in view the above situation answer the following questions:
1) Determine the number of passengers that JIA must carry each month to break even.
2) If at breakeven determined in (1) above, JIA operates any flight at full of passengers, determine the total net income of the flight per day round trip.
3) JIA has a promotional plan to carry 10 newly wed couples to Northern City every month free of cost by balloting. In this case, how many additional passengers, JIA must carry to break even in each month?
4) At present break even level, each flight is left unfilled with some passenger seats. To fill these seats, the TE manager is thinking to offer 5 members group, a complete 3-day trip armed with complete boarding and lodging, 3 group dinners, and daily sight seeing with the company maintained vehicle including driver and a guide on an additional cost of Rs. 25,000 per passenger. SBDU has approved per passenger charges at Rs. 27,000 in addition to a ticket at discount price of Rs. 8,000 per passenger. You are required determine the worth of this proposal.
Just provide your final answers in concise manner. Avoid for providing details of formulas and calculations
Read more: GDB NO 2 FALL 2011 23-01-2012 LASTE DATE - Virtual University of Pakistan http://vustudents.ning.com/group/mgt402costmanagementaccounting/forum/topics/gdb-no-2-fall-2011-23-01-2012-laste-date#ixzz1k4lNhifI
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