Question: The Smooth Flight Airline Corporation is considering lowering fares in an attempt to fill unused seats on its regular flights from N.Y. to Chicago. Recent capacity on every flight is 250 travelers. At present, the corporation sells an average of 130 tickets at $330 per ticket, but estimates that an additional 100 tickets could be sold if it offered stand-by ticket value of $140 on day of flight. Fixed costs per flight are dollar 50,000 & variable costs per ticket are $25.
[A] Make a direct costing (variable) income statement to demonstrate the current profit or loss for each flight at the current level of 130 tickets sold per flight.
[B] Make a direct costing (Variable) income statement to demonstrate the change in profits if the proposed stand-by plan is put into effect.
[C] Find how many tickets must be sold at the $330 price to cover fixed costs?
[D] Find how many tickets must be sold at the $140 price to cover fixed costs, suppose all tickets are at that price?
[E] Would you recommend that management adopt the stand-by ticket? Explain your answer.