Tony Khoury, the Vice President Operations for the Flying Airlines – Management Accounting
Tony Khoury, the Vice President Operations for the Flying Airlines, has been approached by a Japanese Tourist agency about obtaining a special tourist charter flight from Japan to Hawaii. The tourist agency has offered the Flying Airlines $160,000 for a round-trip flight. Considering the airline’s usual airfares and occupancy the round-trip flight would provide revenue of $250,000.
The cost and revenue data from usual Japan to Hawaii are as follows: Revenue Passenger revenue.
Cargo revenue $ 30,000
Total revenue $ 280,000
Expenses Variable expenses of flight $ 90,000
Fixed costs allocated $ 80,000
Total expenses $ 170,000
Profit $ 110,000
Questions:
If the charter flight is accepted there will be no cargo revenue, but there will be a reduction of $5,000 in the variable costs due to savings in reservations and ticketing costs.
A. If there is spare capacity should the special tourist charter flight be accepted purely on financial considerations? Are there any other factors that need to be considered? If so, please discuss.
B. If there is no spare capacity and the tourist charter would have to take the place of an existing flight should it be accepted on financial grounds in these circumstances? Should any other factors be considered in these circumstances? If so, please discuss.