Colorado Airlines is operating at full capacity on its Denver to New York route, offering three flights each day on this route, using Boeing 737’s, each with a capacity of 120 passengers. Airline management wants to determine the least expensive way to increase daily capacity from 360 passengers to 480 passengers. One possibility is to add one more Boeing 737 per day. The other possibility is to replace the current equipment with larger Boeing 727’s, which hold 160 passengers each. In either case, management believes the planes will continue to operate at full capacity. To ascertain the least expensive way to increase passenger capacity on the Denver-to-New York route, management has asked you to determine what “drives” the airline’s operating costs.
Required:
Consider the following cost drivers:
a) Number of flights per day
b) Number of miles flown per day
c) Number of passengers served per day
d) Number of passenger miles (miles flown per day multiplied by number of passengers)
For each of the following costs below, identify the most appropriate cost driver from the above list (a,b,c,d).
Actual depreciation of the airplane (i.e., without regard to the depreciation method chosen for accounting purposes, choose the cost driver that best captures the wear and tear on the equipment, and determines the economic life of the plane).
Personnel who handle baggage
I just need to know which one of the cost drivers above (a,b,c, or d) apply to:
Actual depreciation of the airplane (i.e., without regard to the depreciation method chosen for accounting purposes, choose the cost driver that best captures the wear and tear on the equipment, and determines the economic life of the plane).
And to Personnel who handle baggage.