Boing Inc operates a commuter airline, last year the airline flew 10,000 flights and sold 400,000 one way tickits at $ 59 per tickits, total costs amounted to $ 21,600000 an activity based costing study recently revealed that Boing's cost incluude the following compononts, the cost associated with number of passengers are unit level cost and all other cost are higher level costs
- Activity cost drive Activity cost
- Miles flown(2,000,000 miles at $ 2 per mile $ 4,000,000
- Number of passengers 1,600,000
- Number of flights 8,400,000
- number of TV advertisment 1,200,000
- Airplane lease 4,200,000
- physical plant 1,600,000
- marketing and adminstrative 600,000
- total $ 21,600,000
A assume that the projections for next year include 10 percent increase in miles flown, passengers and flights, advertisement will double, The cost drive rate for miles passenger, flights and advertisment are projected to increse by 5 percent over the amount listed . cost of for airplane leases, ground facility and sales and administrative costs will increase 7 percent with those projections prepare a financial model that has a tickit price increse of $ 5 per one way ticket
B management wants to consider a new ticket pricing method assume that it believes it can sell 300,000 tickits for reserved seating at $ 75 per ticket in addition it proposes to sell discount tickita on less popular flight for $ 40 per ticket using the same cost and activity data in A, how many discount ticket must boing sell to generate the same operating income as it did when it sold 440,000 tickets for $ 64 each
C what happens if the number of $ 75 tickets Boing cabn sell in B is 10 percent less than expected? do you recommended that boing add new services in B.